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Persistence and stochastic convergence of euro area unemployment rates: evidence from LM and RALS-LM unit root tests with breaks

Author

Listed:
  • Irena Raguž Krištić

    (Faculty of Economics and Business, University of Zagreb)

  • Lucija Rogić Dumančić

    (Faculty of Economics and Business, University of Zagreb)

  • Vladimir Arčabić

    (Faculty of Economics and Business, University of Zagreb)

Abstract

The goal of this paper is to determine if the euro area (EUA) accession and membership had a significant impact on the unemployment rates of the EUA countries. The hypothesis of the paper is that there is unemployment hysteresis and EUA accession thus contributed to the economic integration and convergence of the unemployment rates in the EUA. The paper employs LM and RALS-LM unit root tests with two breaks to analyze the persistence, test the stochastic convergence and locate structural break(s) in the seasonally adjusted quarterly unemployment rates, covering the period from 1995q1 to 2016q2. The most interesting results are that: (i) there are EUA-related down breaks in unemployment rates with hysteresis, (ii) EUA-related breaks are followed by the periods of convergence to the EUA11 average, (iii) crisis-related breaks are followed by the periods of divergence and (iv) the EUA membership is not a sufficient condition for stochastic convergence.

Suggested Citation

  • Irena Raguž Krištić & Lucija Rogić Dumančić & Vladimir Arčabić, 2017. "Persistence and stochastic convergence of euro area unemployment rates: evidence from LM and RALS-LM unit root tests with breaks," EFZG Working Papers Series 1707, Faculty of Economics and Business, University of Zagreb.
    • Handle: RePEc:zag:wpaper:1707
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unemployment; Euro area; Hysteresis; Stochastic convergence; Unit root; Structural breaks;
    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
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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