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Hysteresis in West German Unemployment Reconsidered

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  • Michael Reutter
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    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.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-01/WP240.PDF
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 240.

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    Date of creation: 2000
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    Handle: RePEc:ces:ceswps:_240
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    Keywords: Cointegration; hysteresis; trade unions; unemployment;

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    1. Franses, Philip Hans, 1996. "Periodicity and Stochastic Trends in Economic Time Series," OUP Catalogue, Oxford University Press, number 9780198774549, December.
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    15. Ehud Kalai, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Discussion Papers 179, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    Cited by:

    1. Falko Juessen & Christian Bayer, 2005. "Convergence in West German Regional Unemployment Rates," ERSA conference papers ersa05p410, European Regional Science Association.
    2. Wolfgang Franz, 2001. "Neues von der NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(3), pages 256-284.

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