Hysteresis in Unemployment Revisited: Evidence from Panel LM Unit Root Tests with Heterogeneous Structural Breaks

10 Pages Posted: 8 Oct 2009

See all articles by Jun-De Lee

Jun-De Lee

affiliation not provided to SSRN

Chien-Chiang Lee

Nanchang University

Chun-Ping Chang

Shih Chien University

Abstract

This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im et al. (Oxford Bulletin of Economics and Statistics, 67 (2005), pp. 393–419) to re-examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries.

Suggested Citation

Lee, Jun-De and Lee, Chien-Chiang and Chang, Chun-Ping, Hysteresis in Unemployment Revisited: Evidence from Panel LM Unit Root Tests with Heterogeneous Structural Breaks. Bulletin of Economic Research, Vol. 61, Issue 4, pp. 325-334, October 2009, Available at SSRN: https://ssrn.com/abstract=1484069 or http://dx.doi.org/10.1111/j.1467-8586.2008.00287.x

Jun-De Lee (Contact Author)

affiliation not provided to SSRN

No Address Available

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Chun-Ping Chang

Shih Chien University

200 University Road
Ney-Nan Tsun
Kaohsiung, 845
Taiwan

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