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Modelling the US, the UK and Japanese unemployment rates. Fractional integrationand structural breaks

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  • Luis A. Gil-Alana

    () (Facultad de Ciencias Económicas y Empresariales, Universidad de Navarra)

  • Guglielmo M. Caporale

    () (Brunel University, London, England)

Abstract

A general procedure for fractional integration and structural breaks at unknown points in time is used, which allows for different orders of integration and deterministic components in each subsample. First, the procedure is extended to the non-linear case, and is showed by means of Monte Carlo experiments that it performs well in a non-linear environment. Second, it is applied to test for a single break in the unemployment rate in the US, the UK and Japan. The results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsanple). These findings are interpreted in terms of structural instability in labour markets with different features.

Suggested Citation

  • Luis A. Gil-Alana & Guglielmo M. Caporale, 2008. "Modelling the US, the UK and Japanese unemployment rates. Fractional integrationand structural breaks," Faculty Working Papers 11/08, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp1108
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    Cited by:

    1. Belbute, José, 2013. "Does final demand for energy in Portugal exhibit long memory?," MPRA Paper 45717, University Library of Munich, Germany.
    2. Christophe André & Luis A. Gil-Alana & Rangan Gupta, 2014. "Testing for persistence in housing price-to-income and price-to-rent ratios in 16 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2127-2138, June.
    3. Lean, Hooi Hooi & Smyth, Russell, 2009. "Long memory in US disaggregated petroleum consumption: Evidence from univariate and multivariate LM tests for fractional integration," Energy Policy, Elsevier, vol. 37(8), pages 3205-3211, August.
    4. Davidson, James & Hashimzade, Nigar, 2009. "Type I and type II fractional Brownian motions: A reconsideration," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2089-2106, April.
    5. Luis Alberiko Gil-Alana & Zeynel Abidin Ozdemir & Aysit Tansel, 2019. "Long Memory in Turkish Unemployment Rates," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(1), pages 201-217, January.
    6. Guglielmo Maria Caporale & Marinko Skare, 2014. "Long Memory in UK Real GDP, 1851-2013: An ARFIMA-FIGARCH Analysis," Discussion Papers of DIW Berlin 1395, DIW Berlin, German Institute for Economic Research.
    7. Guglielmo Maria Caporale & Luis A. Gil-Alana & Yuliya Lovcha, 2016. "Testing unemployment theories: A multivariate long memory approach," Journal of Applied Economics, Universidad del CEMA, vol. 19, pages 95-112, May.
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    9. Martins, Luis F. & Rodrigues, Paulo M.M., 2014. "Testing for persistence change in fractionally integrated models: An application to world inflation rates," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 502-522.
    10. M. de Carvalho & K. F. Turkman & A. Rua, 2013. "Dynamic threshold modelling and the US business cycle," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 62(4), pages 535-550, August.
    11. Cevik, Emrah Ismail & Dibooglu, Sel, 2013. "Persistence and non-linearity in US unemployment: A regime-switching approach," Economic Systems, Elsevier, vol. 37(1), pages 61-68.
    12. Gil-Alana, Luis A. & Yaya, OlaOluwa S, 2018. "Testing Fractional Unit Roots with Non-linear Smooth Break Approximations using Fourier functions," MPRA Paper 90516, University Library of Munich, Germany.
    13. Apergis, Nicholas & Tsoumas, Chris, 2011. "Integration properties of disaggregated solar, geothermal and biomass energy consumption in the U.S," Energy Policy, Elsevier, vol. 39(9), pages 5474-5479, September.
    14. Yaya, OlaOluwa S & Ogbonna, Ahamuefula & Mudida, Robert, 2019. "Hysteresis of Unemployment Rates in Africa: New Findings from Fourier ADF test," MPRA Paper 93939, University Library of Munich, Germany.
    15. Fosten, Jack & Ghoshray, Atanu, 2011. "Dynamic persistence in the unemployment rate of OECD countries," Economic Modelling, Elsevier, vol. 28(3), pages 948-954, May.

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