Dynamic persistence in the unemployment rate of OECD countries

Fosten, Jack and Ghoshray, Atanu (2011) Dynamic persistence in the unemployment rate of OECD countries. Economic Modelling, 28 (3). pp. 948-954. ISSN 0264-9993

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Abstract

Previous studies use a variety of increasingly advanced unit root tests to determine whether Blanchard and Summers (1986) hysteresis theory of unemployment or the classical 'natural' rate theory of Friedman (1968) and Phelps (1967, 1968) is most relevant for a given country. However these tests all specify a unit root under the null hypothesis against a stationary alternative, such as in the paper by Lee and Chang (2008), making the two theories of unemployment mutually exclusive over the sample period. This paper moves away from this dichotomy by allowing for switches between hysteresis and the natural rate theory using the recently developed test of Leybourne, Kim and Taylor (2007). We find that in countries like the United Kingdom, the natural rate theory is detected in the post-World War Two period of stabilisation: the time leading up to the seminal works of Friedman and Phelps. Hysteresis is found over the First World War and Great Depression periods, and in the period from the 1970s; a time characterised by rising trade union power. We also compute numerical measures of persistence using grid-bootstrap estimates of the autoregressive parameter, following Hansen (1999). (C) 2010 Elsevier B.V. All rights reserved.

Item Type:	Article
Uncontrolled Keywords:	unemployment,hysteresis,unit roots,dynamic persistence,integrated process,stationarity,sdg 8 - decent work and economic growth ,/dk/atira/pure/sustainabledevelopmentgoals/decent_work_and_economic_growth
Faculty \ School:	Faculty of Social Sciences > School of Economics
Depositing User:	Pure Connector
Date Deposited:	19 Aug 2015 11:46
Last Modified:	21 Oct 2022 01:09
URI:	https://ueaeprints.uea.ac.uk/id/eprint/54130
DOI:	10.1016/j.econmod.2010.11.007

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