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Are unemployment rates in OECD countries stationary?: Evidence from univariate and panel unit root tests
Tunis Business School, Université de Tunis, Tunisia.
Montpellier Business School, Montpellier, France.
Jönköping University, Jönköping International Business School, JIBS, Economics. Department of Economics, Sogang University, Seoul, South Korea.ORCID iD: 0000-0002-7902-4683
Department of Economics, Faculty of Business and Economics, Abdul Wali Khan, University Mardan, KP, Pakistan.
2018 (English)In: The North American journal of economics and finance, ISSN 1062-9408, E-ISSN 1879-0860Article in journal (Refereed) Epub ahead of print
Abstract [en]

This paper revisits the dynamics of unemployment rate for 29 OECD countries over the period of 1980–2013. Numerous empirical studies of the dynamics of unemployment rate are carried out within a linear framework. However, unemployment rate can show nonlinear behaviour as a result of business cycles or some idiosyncratic factors specific to labour market (Cancelo, 2007). Thus, as a testing strategy, we first perform Harvey, Leybourne, and Xiao (2008) linearity unit root test and then apply the newly ESTAR nonlinear unit root test suggested by Kruse (2011). This test has higher power than conventional unit root tests when time series exhibits nonlinear behaviour. Our empirical findings provide significant evidence in favour of unemployment rate stationarity for 25 countries. For robustness purpose, we have also used panel unit root tests without and with structural breaks. The empirical results show that unemployment hysteresis hypothesis is strongly rejected, when taking into account the cross-sectional and structural break assumptions. Thus, unemployment rate is expected to return back to their natural levels without executing any costly macroeconomic labour market policies by the OECD's governments. 

Place, publisher, year, edition, pages
Elsevier, 2018.
Keywords [en]
Labour market policy, OECD, Unemployment, Unit root
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-42421DOI: 10.1016/j.najef.2018.08.021Scopus ID: 2-s2.0-85053833432Local ID: IHHÖvrigtISOAI: oai:DiVA.org:hj-42421DiVA, id: diva2:1274934
Available from: 2019-01-03 Created: 2019-01-03 Last updated: 2019-01-03

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Heshmati, Almas

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