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Hysteresis in West German Unemployment Reconsidered

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  • Michael Reutter

Abstract

The view that high unemployment in West Germany and other European countries is caused by a path dependence effect - or "hysteresis" effect - is quite popular among economists. However, because of an identification problem, much of the empirical evidence for this hypothesis is not fu lly convincing. This paper suggests a testing procedure that overcomes this problem. It is argued that in a cointegration framework it is reasonable to define hysteresis as the absence of weak exogeneity of the explanatory variables. Building on a cointeg ration model of the employment rate in West Germany, I find only weak evidence for hysteresis.

Suggested Citation

  • Michael Reutter, 2000. "Hysteresis in West German Unemployment Reconsidered," CESifo Working Paper Series 240, CESifo.
    • Handle: RePEc:ces:ceswps:_240
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    Cited by:

    1. Franz Wolfgang, 2001. "Neues von der NAIRU? / News from the NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 221(3), pages 256-284, June.
    2. Bayer Christian & Jüßen Falko, 2007. "Convergence in West German Regional Unemployment Rates," German Economic Review, De Gruyter, vol. 8(4), pages 510-535, December.
    3. Franz, Wolfgang, 2000. "Neues von der NAIRU?," ZEW Discussion Papers 00-41, ZEW - Leibniz Centre for European Economic Research.

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