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Unemployment and Hysteresis: A Nonlinear Unobserved Components Approach

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  • Pérez-Alonso Alicia

    (Universidade de Vigo)

  • Di Sanzo Silvestro

    (Confcommercio)

Abstract

A new test for hysteresis based on a nonlinear unobserved components model is proposed. Observed unemployment rates are decomposed into a natural rate component and a cyclical component. Threshold type nonlinearites are introduced by allowing past cyclical unemployment to have a different impact on the natural rate depending on the regime of the economy. The impact of lagged cyclical shocks on the current natural component is the measure of hysteresis. To derive an appropriate p-value for a test for hysteresis two alternative bootstrap algorithms are proposed: the first is valid under homoskedastic errors and the second allows for heteroskedasticity of unknown form. A Monte Carlo simulation study shows the good performance of both bootstrap algorithms. The bootstrap testing procedure is applied to data from Italy, France and the United States. We find evidence of hysteresis for all countries under study.

Suggested Citation

  • Pérez-Alonso Alicia & Di Sanzo Silvestro, 2010. "Unemployment and Hysteresis: A Nonlinear Unobserved Components Approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(1), pages 1-29, December.
    • Handle: RePEc:bpj:sndecm:v:15:y:2010:i:1:n:2
    DOI: 10.2202/1558-3708.1806
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    3. Kurmaş Akdoğan, 2017. "Unemployment hysteresis and structural change in Europe," Empirical Economics, Springer, vol. 53(4), pages 1415-1440, December.
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    6. Emilio Congregado & Antonio Golpe & Simon Parker, 2012. "The dynamics of entrepreneurship: hysteresis, business cycles and government policy," Empirical Economics, Springer, vol. 43(3), pages 1239-1261, December.
    7. 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.
    8. Guodong Li & Bo Guan & Wai Keung Li & Philip L. H. Yu, 2015. "Hysteretic autoregressive time series models," Biometrika, Biometrika Trust, vol. 102(3), pages 717-723.
    9. Kostenko Elena & Kuznichenko Vladimir M. & Lapshyn Vladimir I., 2013. "Influence of external periodic and non-linear factors upon stability of economic systems," The Problems of Economy, RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE), issue 2, pages 212-219.
    10. MeiChi Huang, 2020. "A threshold unobserved components model of housing bubbles: timings and effectiveness of monetary policies," Empirical Economics, Springer, vol. 59(2), pages 887-908, August.
    11. Martina Janková & Veronika Novotná & Tereza Varyšová, 2013. "Functions of several variables analysis applied in inventory management," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2221-2227.
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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