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Hysteresis vs. Natural Rate of US Unemployment

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  • Ka Ming Cheng
  • Nazif Durmaz
  • Hyeongwoo Kim
  • Michael Stern

Abstract

This paper investigates the stochastic nature of the unemployment rate allowing for cross-section dependence from a panel of US state-level data. We employ the PANIC method to test the null of nonstationarity for the common and idiosyncratic components separately. We find significant evidence of a nonstationary common component when the data from the most recent recession are included. Even when stationarity is empirically supported, the bias-corrected half-life of the common component appears very long.

Suggested Citation

  • Ka Ming Cheng & Nazif Durmaz & Hyeongwoo Kim & Michael Stern, 2011. "Hysteresis vs. Natural Rate of US Unemployment," Auburn Economics Working Paper Series auwp2011-01, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2011-01
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    File URL: https://cla.auburn.edu/econwp/Archives/2011/2011-01.pdf
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    More about this item

    Keywords

    Unemployment Rate; Natural Rate Hypothesis; Hysteresis; PANIC; Cross-Section Dependence;
    All these keywords.

    JEL classification:

    • 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

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