nach oben

Empirical Economics

Erschienen in:

06.01.2017

Hysteresis in unemployment? Evidence from linear and nonlinear unit root tests and tests with non-normal errors

verfasst von: Ming Meng, Mark C. Strazicich, Junsoo Lee

Erschienen in: Empirical Economics | Ausgabe 4/2017

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

Hysteresis implies that shocks to unemployment have permanent effects. In this paper, we undertake a robust examination of the hysteresis hypothesis for 14 OECD countries by utilizing both linear and nonlinear unit root tests. After performing several linear unit root tests, we employ unit root tests with structural breaks and a Fourier test that allows for unknown breaks and nonlinear functional forms. To further examine the robustness of our findings, we additionally utilize tests that consider non-normal errors. Testing is undertaken using quarterly data for the time period 1983Q1–2013Q3. Overall, we find support for unit root hysteresis in 4 of the 14 countries, the traditional natural rate hypothesis in 3 countries, and the structuralist hypothesis (a natural rate with structural breaks) in 7 countries. In sum, we find that shocks to unemployment have permanent effects in 11 of the 14 countries, while the permanent effects are most often infrequent.

Vorheriger Artikel Revisiting the FDI impact on GDP growth in errors-in-variables models: a panel data GMM analysis allowing for error memory

Nächster Artikel Unemployment hysteresis and structural change in Europe

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

The term “hysteresis” comes from an ancient Greek word roughly interpreted as “lagging.” The modern usage originates in 1881 in the physics literature on electromagnetic fields and is described as “effects which remain after the initial causes are removed” (Cross 1995, p. 6). Phelps (1972, p. xxiii) is perhaps the first to offer a description of unemployment hysteresis in the economics literature when he notes that “The natural unemployment rate at any future date will depend upon the course of history in the interim. Such a property is sometimes called hysteresis.” However, as noted by Amable et al. (1995), among others, a precise definition of unemployment hysteresis is unavailable and different definitions remain in the literature.

Røed (1997) provides a summary of factors that can lead to unemployment hysteresis.

We thank an Associate Editor for noting this.

At the time of writing, we are aware of three other papers that also test for hysteresis using data that include the recent US financial crisis and global recession (e.g., Cheng et al. 2012; Garcia-Cintado et al. 2015; Gali 2015). However, our testing methodologies and data differ from each of these papers in several ways. We discuss more on these papers in Sect. 2.

Given this outcome, the results in some earlier papers that test for hysteresis using an ADF-type endogenous break unit root test should be interpreted with caution since a rejection of the null may be spurious. See Lee and Strazicich (2001, 2003) and Perron (2006) for additional discussion on these issues.

First-differenced lagged terms \(\Delta ({\tilde{{S}}} )_{{t-i}},\; i = 1,\ldots ,p\) are included in (1) as necessary to correct for serial correlation. At each combination of break points, \(\lambda = (\lambda _{1}\), \(\lambda _{2})^ \prime \), where \(\lambda _{j} = {T}_{{Bj}}/{T},\; j=1, 2\), in the time interval [.1T, .9T] to eliminate end points, we begin with a maximum of \(p = 8\) lagged terms and examine the t statistic on the last term to see whether it is significantly different from zero at the 10% level (in an asymptotic distribution). If not significant, the term is dropped and the model re-estimated using \(p = 7\) terms, etc., until either the maximum lagged term is found or \(p = 0\). This type of general-to-specific procedure has been found to perform well as compared to other similar procedures (e.g., Ng and Perron 1995).

The critical values come from Lee and Strazicich (2003, 2013).

For example, the distribution of \({\tilde{\tau }}^{*}\) with one break (two breaks) is the same as that of the untransformed test using \(\lambda ={1}/{2}~ (\lambda _{1}={1}/{3} \hbox { and } \lambda _{2}={2}/{3})\). After transforming the data, the distribution of \(\tilde{\tau }^*\) will depend on the number of trend breaks, but not on their locations (e.g., Meng et al. 2016).

We use the critical values provided in Meng et al. (2016).

The frequency k is selected by using the data-driven grid search methodology proposed in Enders and Lee (2012), which involves estimating Eq. (6) for a range of values of k and choosing the value \((\hat{k})\) that minimizes the sum of squared residuals. See Enders and Lee (2012) for more detailed discussion.

In each case, we begin by applying the two-break LM unit root test to see whether each break is significant at the 10% level using the t-statistic in an asymptotic normal distribution. If only one or no breaks are significant, we then re-estimate the model using the one-break test. If no break is significant in the one-break test, no results are reported in column 2 of Table 3.

Amable B, Henry J, Lordon F, Topol R (1995) Hysteresis revisited: a methodological approach. In: Cross R (ed) The natural rate of unemployment: reflections on 25 years of the hypothesis. Cambridge University Press, Cambridge, pp 153–180CrossRef

Arestis P, Mariscal IB-F (1999) Unit roots and structural breaks in OECD unemployment. Econ Lett 65:149–156CrossRef

Becker R, Enders W, Lee J (2004) A general test for time dependencies in parameters. J Appl Econ 19:899–906CrossRef

Becker R, Enders W, Lee J (2006) A stationarity test in the presence of an unknown number of smooth breaks. J Time Ser Anal 27(3):381–409CrossRef

Blanchard OJ, Summers LH (1986) Hysteresis and the European unemployment problem, NBER macroeconomics annual, vol 1. MIT Press, Cambridge, pp 15–90CrossRef

Blanchard OJ, Summers LH (1987) Hysteresis in unemployment. Eur Econ Rev 31:288–295CrossRef

Camarero M, Tamarit C (2004) Hysteresis vs. natural rate of unemployment: new evidence for OECD countries. Econ Lett 84:413–417CrossRef

Camarero M, Carrión-i-Silvestre JL, Tamarit C (2006) Testing for hysteresis in unemployment in OECD countries: new evidence using stationarity panel tests with breaks. Oxf Bull Econ Stat 68:167–182CrossRef

Camarero M, Carrión-i-Silvestre JL, Tamarit C (2008) Unemployment hysteresis in transition countries: Evidence using stationarity panel tests with breaks. Rev Dev Econ 12(3):620–635CrossRef

Chang T (2011) Hysteresis in unemployment for 17 OECD countries: stationarity test with a Fourier function. Econ Model 28:2208–2214CrossRef

Cheng KM, Durmaz N, Kim H, Stern ML (2012) Hysteresis vs. natural rate of US unemployment. Econ Model 29:428–434CrossRef

Cross R (1995) Hysteresis revisited: a methodological approach. In: Cross R (ed) The natural rate of unemployment: reflections on 25 years of the hypothesis. Cambridge University Press, Cambridge, pp 181–200CrossRef

Elliott G, Rothenberg TJ, Stock JH (1996) Efficient tests for an autoregressive unit root. Econometrica 64(4):813–836CrossRef

Enders W, Lee J (2012) A unit root test using a Fourier series to approximate smooth breaks. Oxf Bull Econ Stat 74(4):574–599CrossRef

Friedman M (1968) The role of monetary policy. Am Econ Rev 58:1–17

Gali Jordi (2015) Hysteresis and the European unemployment problem revisited. Working Paper 21430, National Bureau of Economic Research, Cambridge

Gallant RA (1981) On the bias in flexible functional forms and an essentially unbiased form: the Fourier flexible form. J Econ 15(2):211–245CrossRef

Garcia-Cintado A, Romero-Avila D, Usabiaga C (2015) Can the hysteresis hypothesis in Spanish regional unemployment be beaten? New evidence from unit root tests with breaks. Econ Model 47:244–252CrossRef

Im KS, Lee J, Tieslau M (2005) Panel LM unit root tests with level shifts. Oxf Bull Econ Stat 67:393–419CrossRef

Im KS, Schmidt P (2008) More efficient estimation under non-normality when higher moments do not depend on the regressors, using residual augmented least squares. J Econ 144:219–233CrossRef

Jaeger A, Parkinson M (1994) Some evidence on hysteresis in unemployment rates. Eur Econ Rev 38:329–342CrossRef

Lee CC, Chang CP (2008) Unemployment hysteresis in OECD countries: centurial time series evidence with structural breaks. Econ Model 25:312–325CrossRef

Lee JD, Lee CC, Chang CP (2009) Hysteresis in unemployment revisited: evidence from panel LM unit root tests with heterogeneous structural breaks. Bull Econ Res 61(4):324–325CrossRef

Lee J, Strazicich MC (2001) Break point estimation and spurious rejections with endogenous unit root tests. Oxf Bull Econ Stat 63(5):535–558CrossRef

Lee J, Strazicich MC (2003) Minimum Lagrange multiplier unit root test with two structural breaks. Rev Econ Stat 8(4):1082–1089CrossRef

Lee J, Strazicich MC (2013) Minimum LM unit root test with one structural break. Econ Bull 33(4):2483–2492

Leon-Ledesma MA, McAdam P (2004) Unemployment hysteresis and transition. Scott J Polit Econ 51(3):377–401CrossRef

Meng M (2013) More powerful fourier unit root tests with non-normal errors. Working Paper, The University of Alabama

Meng M, Im KS, Lee J, Tieslau M (2014) More powerful LM unit root tests with non-normal errors. In: Sickles R, Horrace WC (eds) Festschrift in honor of Peter Schmidt. Springer, Heidelberg, pp 343–357CrossRef

Meng M, Lee J, Payne JE (2016) RALS-LM unit root test with trend breaks and non-normal errors: application to the prebisch-singer hypothesis. Stud nonlinear dyn econom. doi:10.1515/snde-2016-005

Mitchell WF (1993) Testing for unit roots and persistence in OECD unemployment. Appl Econ 25:1489–1501CrossRef

Neudorfer P, Pichelmann K, Wagner M (1990) Hysteresis. NAIRU and long term unemployment in Austria. Empir Econ 15:217–229CrossRef

Ng S, Perron P (1995) Unit root tests in ARMA models with data-dependent methods for the selection of the truncation lag. J Am Stat Assoc 90(429):269–281CrossRef

OECD (Organization of Economic Co-operation and Development) (2014) http://stats.oecd.org/

Papell DH, Murray CJ, Ghiblawi H (2000) The structure of unemployment. Rev Econ Stat 82:309–315CrossRef

Perron P (1989) The great crash, the oil price shock and the unit root hypothesis. Econometrica 57:1361–1401CrossRef

Perron P (1997) Further evidence on breaking trend functions in macroeconomic variables. J Econ 80:355–385CrossRef

Perron P (2006) Dealing with structural breaks. In: Mills TC, Patterson K (eds) New Palgrave handbook of econometrics, vol 1. MacMillan, London, pp 278–352

Perron P, Vogelsang T (1992) Nonstationarity and level shifts with an application to purchasing power parity. J Bus Econ Stat 10:301–320

Pissarides CA (1992) Loss of skill during unemployment and the persistence of employment shocks. Q J Econ 107(4):1371–1391CrossRef

Phelps E (1968) Money wage dynamics and labor market equilibrium. J Polit Econ 76:678–711CrossRef

Phelps E (1972) Inflation policy and unemployment theory: the cost-benefit approach to monetary planning. W. W, Norton and Company Inc, New York

Phelps E (1994) Structural slumps: the modern equilibrium theory of unemployment, interest, and assets. Harvard University Press, Cambridge

Røed K (1996) Unemployment hysteresis–macro evidence from 16 OECD countries. Empir Econ 21:589–600CrossRef

Røed K (1997) Hysteresis in unemployment. J Econ Surv 11:389–418CrossRef

Schmidt P, Phillips PCB (1992) LM tests for a unit root in the presence of deterministic trends. Oxf Bull Econ Stat 54:257–287CrossRef

Titel: Hysteresis in unemployment? Evidence from linear and nonlinear unit root tests and tests with non-normal errors
verfasst von: Ming Meng
Mark C. Strazicich
Junsoo Lee
Publikationsdatum: 06.01.2017
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2017
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-016-1196-z

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 4/2017

Tracking positive and negative effects of inequality on long-run growth

Unemployment hysteresis and structural change in Europe

Capital structure adjustments: Do macroeconomic and business risks matter?

Ethnic diversity and firm performance: Evidence from China’s materials and industrial sectors

Endogeneity and nonlinearities in Central Bank of Brazil’s reaction functions: an inverse quantile regression approach

Estimation of a model for matched panel data with high-dimensional two-way unobserved heterogeneity