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Unemployment, hysteresis and transition

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  • León-Ledesma, Miguel A.
  • McAdam, Peter

Abstract

We quantify the degree of persistence in unemployment rates of transition countries using a variety of methods benchmarked against the EU. In part of the paper, we work with the concept of linear "Hysteresis" as described by the presence of unit roots in unemployment. Since this is potentially a narrow definition, we also take into account the existence of structural breaks and non-linear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria: if it remains locked into a new level whenever a structural change occurs. Our findings show that, in general, we can reject the unit root hypothesis after controlling for structural changes and business cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria. JEL Classification: E24, C22, C23

Suggested Citation

  • León-Ledesma, Miguel A. & McAdam, Peter, 2003. "Unemployment, hysteresis and transition," Working Paper Series 234, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2003234
    Note: 50336
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp234.pdf
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    References listed on IDEAS

    as
    1. Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
    2. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    3. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc.
    4. Arestis, Philip & Biefang-Frisancho Mariscal, Iris, 1999. "Unit roots and structural breaks in OECD unemployment," Economics Letters, Elsevier, vol. 65(2), pages 149-156, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    hysteresis; Markov Switching; transition; unemployment; unit root;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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