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A new approach to testing unemployment hysteresis

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  • Fumitaka Furuoka

    (University of Malaya)

Abstract

This paper proposes a novel approach to testing unemployment hysteresis. It examined the existence of hysteresis in the unemployment rates of four Nordic countries, namely Denmark, Finland, Norway and Sweden, for the period of 2000–2014. The study applied four alternative methods to analyse the data. The best estimation procedure was chosen in a simple and consistent way. As the findings indicated, the ADF test and FADF test failed to reject the null hypothesis of unemployment hysteresis in all four countries. The ADF–SB test produced mixed results: it rejected the null hypothesis of hysteresis for Denmark and Norway, but failed to reject the null hypothesis for Finland and Sweden. The FADF–SB test yielded more consistent findings: it rejected the null hypothesis for all four countries. Furthermore, findings from the F-tests clearly indicated that the FADF–SB test was the best method among the four proposed alternatives. Despite some discrepancies the findings of this study suggest that unemployment in the four Nordic countries had a mean reversion tendency.

Suggested Citation

  • Fumitaka Furuoka, 2017. "A new approach to testing unemployment hysteresis," Empirical Economics, Springer, vol. 53(3), pages 1253-1280, November.
    • Handle: RePEc:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1164-7
    DOI: 10.1007/s00181-016-1164-7
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    More about this item

    Keywords

    Hysteresis; Unemployment; Unit root; Nordic countries; Nonlinear; Structural break;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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