IDEAS home Printed from https://ideas.repec.org/a/bmo/bmoart/v2y2015i1p22-40.html
   My bibliography  Save this article

A Reinvestigation of the Hysteresis Hypothesis in the OECD Countries

Author

Listed:
  • Melis Tartici

    (Ankara, Turkey.)

Abstract

This study re-investigates the hysteresis hypothesis in unemployment for 24 OECD countries. The results obtained in the literature are quite mixed for the OECD countries, with the findings highly sensitive to the econometric methodology applied and data used. Therefore, to shed some light on this debate in addition to the conventional unit root tests, a variety of other tests that allow for asymmetric adjustment, structural breaks or both simultaneously are also considered. Our results show that the hysteresis effect in unemployment was confirmed for most of the countries studied according to all tests applied. Thus, the labor markets of the OECD countries calls for urgent reform, especially if they want their jobless rates to return to their pre 2008-2009 global financial crisis levels.

Suggested Citation

  • Melis Tartici, 2015. "A Reinvestigation of the Hysteresis Hypothesis in the OECD Countries," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 2(1), pages 22-40.
    • Handle: RePEc:bmo:bmoart:v:2:y:2015:i:1:p:22-40
    as

    Download full text from publisher

    File URL: http://econometricsletters.com/wp-content/uploads/2016/03/Melis-T-Vol-2-Issue-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Matias Mednik & Cesar M. Rodriguez & Inder J. Ruprah, 2012. "Hysteresis in unemployment: Evidence from Latin America," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(4), pages 448-466, May.
    3. Chang, Tsangyao, 2011. "Hysteresis in unemployment for 17 OECD countries: Stationary test with a Fourier function," Economic Modelling, Elsevier, vol. 28(5), pages 2208-2214, September.
    4. Emirmahmutoglu, Furkan & Omay, Tolga, 2014. "Reexamining the PPP hypothesis: A nonlinear asymmetric heterogeneous panel unit root test," Economic Modelling, Elsevier, vol. 40(C), pages 184-190.
    5. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    6. Sollis, Robert, 2009. "A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries," Economic Modelling, Elsevier, vol. 26(1), pages 118-125, January.
    7. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    8. Tsangyao Chang & Ming Jing Yang & Hui-Chin Liao & Chia-Hao Lee, 2007. "Hysteresis in unemployment: empirical evidence from Taiwan's region data based on panel unit root tests," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1335-1340.
    9. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    10. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308, September.
    11. Robert Sollis, 2004. "Asymmetric adjustment and smooth transitions: a combination of some unit root tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(3), pages 409-417, May.
    12. Tolga Omay & Dilem Yildirim, 2014. "Nonlinearity and Smooth Breaks in Unit Root Testing," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 1(1), pages 1-9.
    13. 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 212-221, May.
    14. Tsangyao Chang & Kuei-Chiu Lee & Chien-Chung Nieh & Ching-Chun Wei, 2005. "An empirical note on testing hysteresis in unemployment for ten European countries: panel SURADF approach," Applied Economics Letters, Taylor & Francis Journals, vol. 12(14), pages 881-886.
    15. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    16. Veli YILANCI, 2008. "Are Unemployment Rates Nonstationary or Nonlinear? Evidence from 19 OECD Countries," Economics Bulletin, AccessEcon, vol. 3(47), pages 1-5.
    17. David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May.
    18. Jhih-Hong Zeng & Chun-ping Chang & Chien-chiang Lee, 2011. "Are Fruit and Vegetable Prices Non-linear Stationary? Evidence from Smooth Transition Autoregressive Models," Economics Bulletin, AccessEcon, vol. 31(1), pages 189-207.
    19. Stephen Leybourne & Paul Newbold & Dimitrios Vougas, 1998. "Unit roots and smooth transitions," Journal of Time Series Analysis, Wiley Blackwell, vol. 19(1), pages 83-97, January.
    20. Magnus Gustavsson & Pär Österholm, 2010. "The presence of unemployment hysteresis in the OECD: what can we learn from out-of-sample forecasts?," Empirical Economics, Springer, vol. 38(3), pages 779-792, June.
    21. Matias Mednik & Cesar M. Rodriguez & Inder J. Ruprah, 2012. "Hysteresis in unemployment: Evidence from Latin America," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(4), pages 448-466, 05.
    22. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76(4), pages 678-678.
    23. Russell Smyth, 2003. "Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 181-192, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Omay, Tolga & Shahbaz, Muhammad & Stewart, Chris, 2021. "Is There Really Hysteresis in OECD Countries’ Unemployment Rates? New Evidence Using a Fourier Panel Unit Root Test," MPRA Paper 107691, University Library of Munich, Germany, revised 10 May 2021.
    2. Tolga Omay & Muhammad Shahbaz & Chris Stewart, 2021. "Is there really hysteresis in the OECD unemployment rates? New evidence using a Fourier panel unit root test," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 875-901, November.
    3. Cheng, Shu-Ching & Wu, Tsung-pao & Lee, Kuei-Chiu & Chang, Tsangyao, 2014. "Flexible Fourier unit root test of unemployment for PIIGS countries," Economic Modelling, Elsevier, vol. 36(C), pages 142-148.
    4. Zarina Oflaz, 2017. "Structural Break, Nonlinearity and the Hysteresis hypothesis: Evidence from new unit root tests," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 4(2), pages 1-16.
    5. Saša Obradoviæ & Lela Ristiæ & Nemanja Lojanica, 2018. "Are unemployment rates stationary for SEE10 countries? Evidence from linear and nonlinear dynamics," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 559-583.
    6. Dieu Nsenga & Mirada Nach & Hlalefang Khobai & Clement Moyo & Andrew Phiri, 2018. "Is it the natural rate or hysteresis hypothesis for unemployment in Newly Industrialized Economies?," Working Papers 1817, Department of Economics, Nelson Mandela University, revised Apr 2018.
    7. Nsenga, Dieu & Nach, Mirada & Khobai, Hlalefang & Moyo, Clement & Phiri, Andrew, 2018. "Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies?," MPRA Paper 86274, 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. 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.
    10. Kurmaş Akdoğan, 2017. "Unemployment hysteresis and structural change in Europe," Empirical Economics, Springer, vol. 53(4), pages 1415-1440, December.
    11. Vuyokazi Pikoko & Andrew Phiri, 2019. "Is There Hysteresis in South African Unemployment? Evidence from the Post-Recessionary Period," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 15(3), pages 365-387, JUNE.
    12. Juan Carlos Cuestas & Luis A. Gil-Alana, 2011. "Unemployment hysteresis, structural changes, non-linearities and fractional integration in European transition economies," Working Papers 2011005, The University of Sheffield, Department of Economics, revised Feb 2011.
    13. Cheng, Ka Ming, 2022. "Doubts on natural rate of unemployment: Evidence and policy implications," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 230-239.
    14. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Unemployment hysteresis in OECD countries: Centurial time series evidence with structural breaks," Economic Modelling, Elsevier, vol. 25(2), pages 312-325, March.
    15. OlaOluwa S. Yaya & Ahamuefula E. Ogbonna & Robert Mudida, 2019. "Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2781-2795, November.
    16. Cuestas, Juan C. & Gil-Alana, Luis A. & Staehr, Karsten, 2011. "A further investigation of unemployment persistence in European transition economies," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 514-532.
    17. Chen, Shyh-Wei & Xie, Zixiong, 2015. "Testing for current account sustainability under assumptions of smooth break and nonlinearity," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 142-156.
    18. Diego Romero-Ávila & Tolga Omay, 2023. "Convergence of GHGs emissions in the long-run: aerosol precursors, reactive gases and aerosols—a nonlinear panel approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(11), pages 12303-12337, November.
    19. Matteo Lanzafame, 2010. "The nature of regional unemployment in Italy," Empirical Economics, Springer, vol. 39(3), pages 877-895, December.
    20. Luis Alberiko Gil-Alana & Zeynel Abidin Ozdemir & Aysit Tansel, 2019. "Long Memory in Turkish Unemployment Rates," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(1), pages 201-217, January.

    More about this item

    Keywords

    Hysteresis in unemployment; Nonlinear unit root test; Unit root test with structural break; Unit root test with both structural break and asymmetric nonlinearity.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bmo:bmoart:v:2:y:2015:i:1:p:22-40. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tolga Omay (email available below). General contact details of provider: http://www.econometricsletters.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.