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Revisiting Okun's Law: An Hysteretic Perspective

  • Schorderet, Yann
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    Many developed countries have suffered from high unemployment rates during the last few decades. Beyond the economic and social consequences of this painful experience, the understanding of the mechanisms underlying unemployment still constitutes an important challenge. Focusing on one of its relevant determinants, we reexamine the link between output and unemployment. We show that the difficulty of detecting the close relationship between the two is due to a phenomenon of non-linearity. The asymmetric feature characterizing the data refers to a theory known as hysteresis.

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    File URL: http://www.escholarship.org/uc/item/2fb7n2wd.pdf;origin=repeccitec
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    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt2fb7n2wd.

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    Date of creation: 01 Aug 2001
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    Handle: RePEc:cdl:ucsdec:qt2fb7n2wd
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    1. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February.
    2. Hargreaves Heap, S P, 1980. "Choosing the Wrong 'Natural' Rate: Accelerating Inflation or Decelerating Employment and Growth?," Economic Journal, Royal Economic Society, vol. 90(359), pages 611-20, September.
    3. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    4. Franz, Wolfgang, 1990. "Hysteresis in economic relationships: An overview," Discussion Papers, Series II 104, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    5. Brannas, K. & Ohlsson, H., 1995. "Asymmetric Cycles and Temporal Aggregation," Papers 1995-11, Uppsala - Working Paper Series.
    6. Franz, Wolfgang, 1990. "Hysteresis in Economic Relationships: An Overview," Empirical Economics, Springer, vol. 15(2), pages 109-25.
    7. Granger, Clive W J, 1995. "Modelling Nonlinear Relationships between Extended-Memory Variables," Econometrica, Econometric Society, vol. 63(2), pages 265-79, March.
    8. Gordon, Robert J, 1989. "Hysteresis in History: Was There Ever a Phillips Curve?," American Economic Review, American Economic Association, vol. 79(2), pages 220-25, May.
    9. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
    10. Budd, Alan & Levine, Paul & Smith, Peter, 1987. "Long-term unemployment and the shifting U-V curve : A multi-country study," European Economic Review, Elsevier, vol. 31(1-2), pages 296-305.
    11. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    12. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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