Hysteresis vs. Natural Rate of US Unemployment
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.
|Date of creation:||Jan 2011|
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