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Hysteresis In Unemployment Revisited: Evidence From Panel Lm Unit Root Tests With Heterogeneous Structural Breaks

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  • Jun‐De Lee
  • Chien‐Chiang Lee
  • Chun‐Ping Chang

Abstract

This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im et al. (Oxford Bulletin of Economics and Statistics, 67 (2005), pp. 393–419) to re‐examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries.

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  • Jun‐De Lee & Chien‐Chiang Lee & Chun‐Ping Chang, 2009. "Hysteresis In Unemployment Revisited: Evidence From Panel Lm Unit Root Tests With Heterogeneous Structural Breaks," Bulletin of Economic Research, Wiley Blackwell, vol. 61(4), pages 325-334, October.
    • Handle: RePEc:bla:buecrs:v:61:y:2009:i:4:p:325-334
    DOI: 10.1111/j.1467-8586.2008.00287.x
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    1. Marques, André M. & Lima, Gilberto Tadeu & Troster, Victor, 2017. "Unemployment persistence in OECD countries after the Great Recession," Economic Modelling, Elsevier, vol. 64(C), pages 105-116.
    2. Benos, Nikos & Stavrakoudis, Athanassios, 2022. "Okun's law: Copula-based evidence from G7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 478-491.
    3. Fumitaka Furuoka, 2015. "Unemployment Hysteresis in the “Nordic Kitten”: Evidence from Five Estonian Regions," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(5), pages 631-642, December.
    4. Kurmaş Akdoğan, 2017. "Unemployment hysteresis and structural change in Europe," Empirical Economics, Springer, vol. 53(4), pages 1415-1440, December.
    5. Fumitaka Furuoka, 2021. "Testing hysteresis in unemployment using artificial network (ANN) unit root test," Economics Bulletin, AccessEcon, vol. 41(3), pages 1947-1958.
    6. Fumitaka Furuoka, 2017. "Unemployment Dynamics In The Asia-Pacific Region: A Preliminary Investigation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 983-1016, December.
    7. Congregado, Emilio & Garcia-Clemente, Javier & Rubino, Nicola & Vilchez, Inmaculada, 2023. "Testing hysteresis for the US and UK involuntary part-time employment," MPRA Paper 118115, University Library of Munich, Germany.
    8. Khraief, Naceur & Shahbaz, Muhammad & Heshmati, Almas & Azam, Muhammad, 2020. "Are unemployment rates in OECD countries stationary? Evidence from univariate and panel unit root tests," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Fumitaka FURUOKA, 2014. "Does Hysteresis Exist in Unemployment? New Findings from Fourteen Regions of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 59-78, February.
    10. Ming Meng & Mark C. Strazicich & Junsoo Lee, 2017. "Hysteresis in unemployment? Evidence from linear and nonlinear unit root tests and tests with non-normal errors," Empirical Economics, Springer, vol. 53(4), pages 1399-1414, December.
    11. Niels Framroze Møller, 2019. "Decoding unemployment persistence: an econometric framework for identifying and comparing the sources of persistence with an application to UK macrodata," Empirical Economics, Springer, vol. 56(5), pages 1489-1514, May.
    12. Chang, Ming-Jen & Su, Che-Yi, 2014. "Hysteresis versus natural rate in Taiwan's unemployment: Evidence from the educational attainment categories," Economic Modelling, Elsevier, vol. 43(C), pages 293-304.
    13. Niels Framroze Møller, 2013. "Understanding Unemployment Hysteresis: A system-based econometric approach to changing equilibria and slow adjustment," Discussion Papers 13-06, University of Copenhagen. Department of Economics.
    14. Qaiser Munir & Sook Ching Kok & Kasim Mansur, 2019. "External Shocks, Structural Breaks And Unemployment Hysteresis In Selected Asian Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(03), pages 575-600, June.
    15. 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.
    16. Furuoka, Fumitaka, 2014. "Hysteresis in European labour market," MPRA Paper 60946, University Library of Munich, Germany.
    17. Furuoka, Fumitaka, 2014. "Unemployment hysteresis in Central Asia," MPRA Paper 60323, University Library of Munich, Germany.
    18. Fumitaka Furuoka, 2017. "A new approach to testing unemployment hysteresis," Empirical Economics, Springer, vol. 53(3), pages 1253-1280, November.

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