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Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence

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  • Giorgio Canarella

    (California State University, Los Angeles and University of Nevada, Las Vegas)

  • Stephen M. Miller

    (University of Nevada, Las Vegas and University of Connecticut)

  • Stephen K. Pollard

    (California State University, Los Angeles)

Abstract

This paper explores the mean-reverting behavior of the unemployment rate using monthly geographically disaggregated data for the period 1991:01 through 2012:02. We apply both standard unit-root tests and tests that allow for one and two structural breaks in the mean. We find evidence that favors both unit-root and stationary processes. No series exhibits stationarity around a constant mean, which does not support the traditional natural-rate hypothesis, but about half of the series exhibit stationarity around a shifting mean. For these series, we find that the break occurs at the Great Recession. To complement the unit-root analysis, we also examine the behavior of the series using the Bai and Perron methods to detect multiple regimes at unknown points of time. We find that the Great Recession also altered the persistence of the unemployment rate series over the identified regimes. In general, the values of the estimated persistence within regimes decrease between those regimes, implying faster absorption of shocks later in the sample period.

Suggested Citation

  • Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2013. "Unemployment Rate Hysteresis and the Great Recession: Exploring the Metropolitan Evidence," Working papers 2013-19, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2013-19
    Note: Stephen M. Miller is corresponding author.
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    More about this item

    Keywords

    structural break tests; hysteresis; Great Recession; unit root; MSA unemployment rate; mean reversion;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    Statistics

    Access and download statistics

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