testing for hysteresis in unemployment. an unobserved components approach

Jäger, Albert and Parkinson, Martin (November 1989) testing for hysteresis in unemployment. an unobserved components approach. Former Series > Forschungsberichte / Research Memoranda 260


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abstract: we suggest a new test for hysteresis in unemployment based on an unobserved components model. observed unemployment rates are decomposed into a natural rate component and a cyclical component. the impact of lagged cyclical shocks on the current natural component is the measure of hysteresis. to identify the two components of unemployment, we assume that the cyclical component is correlated with capacity utilization. the model is applied to u.s. and german data. we find no evidence of hysteresis in u.s. data. german unemployment rates exhibit substantial hysteresis. a shock of 1.0 percent to the current cyclical component permanently increases future german natural rates by about 0.5 percent. for both countries, natural rate shocks turn out to be an important impulse mechanism to explain movements in observed unemployment rates.;

Item Type: IHS Series
Date Deposited: 26 Sep 2014 10:34
Last Modified: 01 Apr 2016 14:07
URI: https://irihs.ihs.ac.at/id/eprint/260

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