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Nonlinear vs. nonstationary of hysteresis in unemployment: evidence from OECD economies

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  • Cheng-Hsun Lin
  • Nai-Fong Kuo
  • Cheng-Da Yuan

Abstract

This study examines the lower and higher boundaries for the threshold value to be considered an indicator of unemployment in a specific country. Specially, the objective is to conduct the critical moment of hysteresis effects happening in unemployment rate using a group of 16 OECD countries. The methodological strategy applies a developed tool of threshold tests involving unit root against stationary but nonlinear alternative by Caner and Hansen (2001). A significant contribution of this study is identifying a trigger point from the nonstationary of time series process for the first time in the literature. Our empirical results finds strong evidence of the existence of nonlinear stationary in Australia, Canada, Finland, France, Germany, Ireland, Japan, Netherlands and the USA when the threshold effect holds. The hysteresis hypothesis is further confirmed by the fact that the unemployment rate exceeds the boundaries of the band, for Australia, Finland, France, Germany, Japan and the USA when the threshold unit root test of Caner and Hansen is rigorously implemented.

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  • Cheng-Hsun Lin & Nai-Fong Kuo & Cheng-Da Yuan, 2008. "Nonlinear vs. nonstationary of hysteresis in unemployment: evidence from OECD economies," Applied Economics Letters, Taylor & Francis Journals, vol. 15(11), pages 905-909.
    • Handle: RePEc:taf:apeclt:v:15:y:2008:i:11:p:905-909
    DOI: 10.1080/13504850600949145
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    1. Leon-Ledesma, Miguel A, 2002. "Unemployment Hysteresis in the US States and the EU: A Panel Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 54(2), pages 95-103, April.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Furuoka, Fumitaka, 2014. "Hysteresis in European labour market," MPRA Paper 60946, University Library of Munich, Germany.
    5. 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).
    6. Jiang, Yushi & Chang, Tsangyao, 2016. "Bring Quantile Unit Root Test back in Testing Hysteresis in Unemployment for the United States," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 5-13, March.
    7. 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.
    8. 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.
    9. 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.
    10. Burak Güriş & Burcu Yavuz Tiftikçigil & Muhammed Tıraşoğlu, 2017. "Testing for unemployment hysteresis in Turkey: evidence from nonlinear unit root tests," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(1), pages 35-46, January.
    11. Yushi Jiang & Yifei Cai & Yi-Ting Peng & Tsangyao Chang, 2019. "Testing Hysteresis in Unemployment in G7 Countries Using Quantile Unit Root Test with both Sharp Shifts and Smooth Breaks," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(3), pages 1211-1229, April.

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