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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
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  3. Roed, Knut, 1996. "Unemployment Hysteresis--Macro Evidence from 16 OECD Countries," Empirical Economics, Springer, vol. 21(4), pages 589-600.
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  7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  8. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics 519, Boston College Department of Economics.
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  10. Brunello, G., 1989. "Hysteresis And The Japanese Unemployment Problem: A Preliminary Investigation," Papers 330, London School of Economics - Centre for Labour Economics.
  11. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332.
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  13. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
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  15. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
  16. So, Beong Soo & Shin, Dong Wan, 1999. "Recursive mean adjustment in time-series inferences," Statistics & Probability Letters, Elsevier, vol. 43(1), pages 65-73, May.
  17. 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.
  18. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  19. Zhijie Xiao & Peter C.B. Phillips, 1997. "An ADF Coefficient Test for a Unit Root in ARMA Models of Unknown Order with Empirical Applications to the U.S. Economy," Cowles Foundation Discussion Papers 1161, Cowles Foundation for Research in Economics, Yale University.
  20. Kim, Hyeongwoo & Stern, Liliana V. & Stern, Michael L., 2010. "Half-life bias correction and the G7 stock markets," Economics Letters, Elsevier, vol. 109(1), pages 1-3, October.
  21. 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.
  22. 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.
  23. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
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