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Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test

Author

Listed:
  • OlaOluwa S. Yaya

    (University of Ibadan)

  • Ahamuefula E. Ogbonna

    (University of Ibadan
    University of Ibadan)

  • Robert Mudida

    (Strathmore University)

Abstract

We investigate the existence of the unit root hypothesis in the unemployment rates of 42 African countries using the Fourier ADF test. The essence is to clarify if the hypothesis of hysteresis holds or unemployment rate is dubbed as having natural rate, that is, stationarity. Having considered a novel approach that considers the nonlinear Fourier and a structural break in the unit root testing framework, we find the classical unit root test wrongly accepting the hysteresis hypothesis of unemployment rate in selected African countries more than 60% of the cases. Meanwhile, our approach finds fewer cases of hysteresis in the unemployment rate than initially detected by the conventional classical test: the hysteresis hypothesis is found to hold in only seven countries (Algeria, Botswana, Cabo Verde, Congo DR, Guinea-Bissau, Liberia and Tanzania) out of the 42 African countries. This implies that with the exception of the seven countries mentioned, shocks to unemployment will be transitory and strong policy action will not be required to address unemployment challenges. This suggests that hysteresis effects will be offset overall since these are concentrated in smaller African economies and portends for a faster recovery to shocks in the broader African context. Robustness check proves the superiority of the Fourier unit root tests with structural break over other lower alternatives.

Suggested Citation

  • 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.
  • Handle: RePEc:spr:qualqt:v:53:y:2019:i:6:d:10.1007_s11135-019-00894-6
    DOI: 10.1007/s11135-019-00894-6
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    2. Fumitaka Furuoka, 2021. "Testing hysteresis in unemployment using artificial network (ANN) unit root test," Economics Bulletin, AccessEcon, vol. 41(3), pages 1947-1958.
    3. OlaOluwa S. Yaya & Ahamuefula E. Ogbonna & Fumitaka Furuoka & Luis A. Gil‐Alana, 2021. "A New Unit Root Test for Unemployment Hysteresis Based on the Autoregressive Neural Network," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(4), pages 960-981, August.
    4. Oladapo Gbenga Awolaja & OlaOluwa Simon Yaya & Ahamuefula Ephraim Ogbonna & Solomon Onuche Joseph & Xuan Vinh Vo, 2021. "Unemployment hysteresis in Middle East and North Africa countries: panel SUR-based unit root test with a Fourier function," Middle East Development Journal, Taylor & Francis Journals, vol. 13(2), pages 318-334, July.
    5. Veli YILANCI & Yilmaz OZKAN & Abdulkadir ALTINSOY, 2020. "Testing the Unemployment Hysteresis in G7 Countries: A Fresh Evidence from Fourier Threshold Unit Root Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 49-59, September.
    6. Yaya, OlaOluwa S & Ogbonna, Ephraim A & Furuoka, Fumitaka & Gil-Alana, Luis A., 2019. "A new unit root analysis for testing hysteresis in unemployment," MPRA Paper 96621, University Library of Munich, Germany.
    7. Myachin, N., 2022. "Is there a natural rate of crime in Russia?," Journal of the New Economic Association, New Economic Association, vol. 53(1), pages 85-98.

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    More about this item

    Keywords

    Africa; Fourier function; Hysteresis hypothesis; Structural breaks; Natural rate of unemployment; Unemployment rate; Unit root test;
    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
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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