Hysteresis in unemployment: Evidence from OECD countries

Frank M. Song, Yangru Wu

Research output: Contribution to journalArticlepeer-review

78 Scopus citations

Abstract

Existing studies using standard unit-root tests generally cannot reject the null hypothesis of a unit root in unemployment rates. These findings have been interpreted as support for the hysteresis hypothesis. In this paper, we analyze a panel of unemployment rates of fifteen OECD countries by using a panel-based test. The test exploits the cross-section variations of the constituent series and is more powerful. The critical values are simulated based on our specific panel sizes and time periods. It is found that the null hypothesis of a unit root in unemployment rates can be rejected in general. This casts some doubt on the hysteresis hypothesis and provides limited support for the natural-rate hypothesis of unemployment for these countries.

Original languageEnglish (US)
Pages (from-to)181-192
Number of pages12
JournalQuarterly Review of Economics and Finance
Volume38
Issue number2
DOIs
StatePublished - 1998

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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