IDEAS home Printed from
   My bibliography  Save this paper

A smooth-transition model of the Australian unemployment rate


  • Gunnar Bårdsen

    () (Department of Economics, Norwegian University of Science and Technology)

  • Stan Hurn

    () (School of Economics and Finance, Queensland University of Technology)

  • Zoë McHugh

    (School of Economics and Finance, Queensland University of Technology)


Models of the aggregate unemployment rate have traditionally been estimated from structural models of the labour market or in a linear single-equation framework. However, theory as well as evidence suggest that the unemployment rate is asymmetric and should be modelled in a non-linear framework. In this paper the unemployment rate in Australia is modelled as a non-linear function of aggregate demand and real wages. Negative changes in aggregate demand cause the unemployment rate to rise rapidly, while real wage rigidity contributes its to slow adjustment back towards a lower level of unemployment. The model is developed by exploiting recent developments in automated model-selection procedures.

Suggested Citation

  • Gunnar Bårdsen & Stan Hurn & Zoë McHugh, 2002. "A smooth-transition model of the Australian unemployment rate," Working Paper Series 1002, Department of Economics, Norwegian University of Science and Technology, revised 01 Jul 2003.
  • Handle: RePEc:nst:samfok:1002

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Peat, Maurice & Stevenson, Max, 1996. "Asymmetry in the business cycle: Evidence from the Australian labour market," Journal of Economic Behavior & Organization, Elsevier, vol. 30(3), pages 353-368, September.
    2. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
    3. Acemoglu, Daron & Scott, Andrew, 1994. "Asymmetries in the Cyclical Behaviour of UK Labour Markets," Economic Journal, Royal Economic Society, vol. 104(427), pages 1303-1323, November.
    4. Skalin, Joakim & Ter svirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 202-241, April.
    5. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    6. Bodman, Philip M, 1998. "Asymmetry and Duration Dependence in Australian GDP and Unemployment," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 399-411, December.
    7. repec:cup:macdyn:v:6:y:2002:i:2:p:202-41 is not listed on IDEAS
    8. Parker Randall E. & Rothman Philip, 1998. "The Current Depth-of-Recession and Unemployment-Rate Forecasts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 1-10, January.
    9. Brock, W.A. & Dechert, W.D. & LeBaron, B. & Scheinkman, J.A., 1995. "A Test for Independence Based on the Correlation Dimension," Working papers 9520, Wisconsin Madison - Social Systems.
    10. Goodridge, Stephen & Harding, Don & Lloyd, Peter, 1995. "The Long Term Growth In Unemployment," MPRA Paper 3706, University Library of Munich, Germany.
    11. Guy Debelle & James Vickery, 1998. "The Macroeconomics of Australian Unemployment," RBA Annual Conference Volume,in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
    12. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
    13. Le, Anh T & Miller, Paul W, 2000. "Australia's Unemployment Problem," The Economic Record, The Economic Society of Australia, vol. 76(232), pages 74-104, March.
    14. Kurt Brännäs & Henry Ohlsson, 1999. "Asymmetric Time Series and Temporal Aggregation," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 341-344, May.
    15. Jeff Borland, 1997. "Unemployment in Australia-Prospects and Policies: An Overview," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(4), pages 391-404.
    16. Tom Valentine, 1993. "The Sources of Unemployment: A Simple Econometric Analysis," Working Paper Series 32, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    17. 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 307-328, April.
    18. Philip Rothman, 1998. "Forecasting Asymmetric Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 164-168, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Kulaksizoglu, Tamer & Kulaksizoglu, Sebnem, 2009. "The U.S. Excess Money Growth and Inflation Relation in the Long-Run: A Nonlinear Analysis," MPRA Paper 23780, University Library of Munich, Germany.
    2. Julie L. Hotchkiss & John C. Robertson, 2006. "Asymmetric labor force participation decisions over the business cycle: evidence from U.S. microdata," FRB Atlanta Working Paper 2006-08, Federal Reserve Bank of Atlanta.

    More about this item


    unemployment; non-linearity; dynamic modelling; aggregate demand; real wages;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nst:samfok:1002. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hilde Saxi Gildberg). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.