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Hysteresis and Unemployment: a Preliminary Investigation

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Author Info
Rod Cross () (University of Strathclyde)
Julia Darby () (University of Glasgow)
Jonathan Ireland () (University of Strathclyde)
Laura Piscitelli () (University of Strathclyde)

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Abstract

This paper elucidates hysteresis using a simple model of market entry and exit. A procedure for calculating hysteresis indices for economic time series is outlined. Some preliminary results assess the explanatory power of hysteresis variables in determining the equilibrium rate of unemployment in the UK. We find that natural and "unnatural" variables are involved in a cointegrating vector for UK unemployment over the period 1959-1996. The natural variable is the replacement ratio. The "unnatural" variables are the hysteresis indices for the exchange rate, the real oil price, and the real interest rate.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 721.

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Date of creation: 01 Mar 1999
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Handle: RePEc:sce:scecf9:721

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Postal: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
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Web page: http://fmwww.bc.edu/CEF99/
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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.:
  1. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Blanchard, Olivier J, 1986. "The Wage Price Spiral," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 543-65, August. [Downloadable!] (restricted)
    Other versions:
  3. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-75, December. [Downloadable!] (restricted)
  4. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-28, February.
  6. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June. [Downloadable!] (restricted)
  7. 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.
  8. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56. [Downloadable!]
  9. Giavazzi, Francesco & Wyplosz, Charles, 1985. "The Zero Root Problem: A Note on the Dynamic Determination of the Stationary Equilibrium in Linear Models," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 353-57, April. [Downloadable!] (restricted)
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  11. Staiger, Douglas & Stock, James H & Watson, Mark W, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter. [Downloadable!] (restricted)
  12. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  14. Olivier Jean Blanchard, 1988. "Unemployment: Getting the Questions Right--and Some of the Answers," Working papers 502, Massachusetts Institute of Technology (MIT), Department of Economics.
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  15. Piscitelli, Laura, et al, 1999. "On Entry and Exit in Response to Aggregate Shocks," Applied Economics Letters, Taylor and Francis Journals, vol. 6(9), pages 569-72, September. [Downloadable!] (restricted)
  16. Blinder, Alan S, 1987. "Keynes, Lucas, and Scientific Progress," American Economic Review, American Economic Association, vol. 77(2), pages 130-36, May. [Downloadable!] (restricted)
  17. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January. [Downloadable!] (restricted)
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  18. Rod Cross & Michael Grinfeld & Laura Piscitelli, 1999. "Hysteresis in Economic Systems," Computing in Economics and Finance 1999 723, Society for Computational Economics.
  19. Robert G. King & James H. Stock & Mark W. Watson, 1995. "Temporal instability of the unemployment-inflation relationship," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 2-12. [Downloadable!]
  20. Amable, Bruno & Henry, Jerome & Lordon, Frederic & Topol, Richard, 1994. "Strong hysteresis versus zero-root dynamics," Economics Letters, Elsevier, vol. 44(1-2), pages 43-47. [Downloadable!] (restricted)
  21. Solow, Robert M, 1986. "Unemployment: Getting the Questions Right," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S23-34, Supplemen. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Rod Cross, Douglas Strachan, 2001. "Three Pillars of Conventional Wisdom," Review of Political Economy, Taylor and Francis Journals, vol. 13(2), pages 181-200, April. [Downloadable!] (restricted)
  2. Karanassou, Marika & Sala, Hector, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," IZA Discussion Papers 3712, Institute for the Study of Labor (IZA). [Downloadable!]
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