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Hysteresis vs. Natural Rate of US Unemployment

  • Ka Ming Cheng
  • Nazif Durmaz
  • Hyeongwoo Kim
  • Michael Stern

This paper investigates the stochastic nature of the unemployment rate allowing for cross-section dependence from a panel of US state-level data. We employ the PANIC method to test the null of nonstationarity for the common and idiosyncratic components separately. We find significant evidence of a nonstationary common component when the data from the most recent recession are included. Even when stationarity is empirically supported, the bias-corrected half-life of the common component appears very long.

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File URL: http://cla.auburn.edu/econwp/Archives/2011/2011-01.pdf
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Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2011-01.

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Date of creation: Jan 2011
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Handle: RePEc:abn:wpaper:auwp2011-01
Contact details of provider: Postal: 0326 Haley Center, Auburn University, AL 36849-5049
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Web page: http://cla.auburn.edu/economics/

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  17. Song, Frank M & Wu, Yangru, 1997. "Hysteresis in Unemployment: Evidence from 48 U.S. States," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 235-43, April.
  18. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  19. Chi-Young Choi & Nelson C. Mark & Donggyu Sul, 2010. "Bias Reduction in Dynamic Panel Data Models by Common Recursive Mean Adjustment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(5), pages 567-599, October.
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