Nonlinearities and fractional integration in the US unemployment rate
This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework, using a Lagrange Multiplier procedure with a standard null limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some non-linear functions of labour demand variables such as real oil prices and real interest rates. We also find evidence of a long-memory component. Our results are consistent with a hysteresis model with path dependency rather than a NAIRU model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilisation policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policy-making.
|Date of creation:||04 Dec 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mehmet Caner & Bruce E. Hansen, 2001.
"Threshold Autoregression with a Unit Root,"
Econometric Society, vol. 69(6), pages 1555-1596, November.
- Luis Gil-Alana, 2003. "Seasonal Misspecification in the Context of Fractionally Integrated Univariate Time Series," Computational Economics, Society for Computational Economics, vol. 22(1), pages 65-74, August.
- Carruth, A.A. & Hooker, M.A. & Oswald, A.J., 1998.
"Unemployment Equilibria and Input Prices: Theory and Evidence from the United States,"
The Warwick Economics Research Paper Series (TWERPS)
496, University of Warwick, Department of Economics.
- Alan A. Carruth & Mark A. Hooker & Andrew J. Oswald, 1998. "Unemployment Equilibria And Input Prices: Theory And Evidence From The United States," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 621-628, November.
- Carruth,a. & Hooker, N. & Oswald,A., 1997. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," Papers 22, Centre for Economic Performance & Institute of Economics.
- L. A. Gil-Alaña & Peter M. Robinson, 2001. "Testing of seasonal fractional integration in UK and Japanese consumption and income," LSE Research Online Documents on Economics 298, London School of Economics and Political Science, LSE Library.
- Skalin, Joakim & Ter svirta, Timo, 2002.
"Modeling Asymmetries And Moving Equilibria In Unemployment Rates,"
Cambridge University Press, vol. 6(02), pages 202-241, April.
- Skalin, Joakim & Teräsvirta, Timo, 1998. "Modelling asymmetries and moving equilibria in unemployment rates," SSE/EFI Working Paper Series in Economics and Finance 262, Stockholm School of Economics, revised 05 Oct 1998.
- Guglielmo Maria Caporale & Luis Gil-Alana, 2002. "Unemployment and input prices: a fractional cointegration approach," Applied Economics Letters, Taylor & Francis Journals, vol. 9(6), pages 347-351.
- Zoega, Gylfi, 1994.
"Unemployment Persistence: Does the Size of the Shock Matter?,"
CEPR Discussion Papers
1082, C.E.P.R. Discussion Papers.
- 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.
- Marco Bianchi & Gylfi Zoega, 1996. "Unemployment persistence: Does the size of the shock matter?," Bank of England working papers 50, Bank of England.
- Bianchi, Marco & Zoega, Gylfi, 1995. "Unemployment Persistence : Does the Size of the Shock Matter ?," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Ramsey, J.B. & Rothman, P., 1993.
"Time Irreversibility and Business Cycle Asymmetry,"
93-39, C.V. Starr Center for Applied Economics, New York University.
- Daniel S. Hamermesh & Gerard A. Pfann, 1996.
"Adjustment Costs in Factor Demand,"
Journal of Economic Literature,
American Economic Association, vol. 34(3), pages 1264-1292, September.
- Eitrheim, Oyvind & Terasvirta, Timo, 1996.
"Testing the adequacy of smooth transition autoregressive models,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 59-75, September.
- Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," SSE/EFI Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
- Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
- Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
- Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
- 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 307-28, April.
- Cross, Rod, 1994. "The Macroeconomic Consequences of Discontinuous Adjustment: Selective Memory of Non-dominated Extrema," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 212-21, May.
- Gil-Alana, Luis A., 2000. "Mean reversion in the real exchange rates," Economics Letters, Elsevier, vol. 69(3), pages 285-288, December.
- Franses, Ph.H.B.F. & Paap, R., 1998. "Modelling asymmetric persistence over the business cycle," Econometric Institute Research Papers EI 9852, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Philip Rothman, 1998.
"Forecasting Asymmetric Unemployment Rates,"
The Review of Economics and Statistics,
MIT Press, vol. 80(1), pages 164-168, February.
- Gil-Alana, Luis A., 1999. "Testing fractional integration with monthly data," Economic Modelling, Elsevier, vol. 16(4), pages 613-629, December.
- Gil-Alana, Luis A., 2002. "Seasonal long memory in the aggregate output," Economics Letters, Elsevier, vol. 74(3), pages 333-337, February.
When requesting a correction, please mention this item's handle: RePEc:una:unccee:wp1806. 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: ()
If references are entirely missing, you can add them using this form.