Nonlinear vs. nonstationary of hysteresis in unemployment: evidence from OECD economies

Abstract

This study examines the lower and higher boundaries for the threshold value to be considered an indicator of unemployment in a specific country. Specially, the objective is to conduct the critical moment of hysteresis effects happening in unemployment rate using a group of 16 OECD countries. The methodological strategy applies a developed tool of threshold tests involving unit root against stationary but nonlinear alternative by Caner and Hansen (2001). A significant contribution of this study is identifying a trigger point from the nonstationary of time series process for the first time in the literature. Our empirical results finds strong evidence of the existence of nonlinear stationary in Australia, Canada, Finland, France, Germany, Ireland, Japan, Netherlands and the USA when the threshold effect holds. The hysteresis hypothesis is further confirmed by the fact that the unemployment rate exceeds the boundaries of the band, for Australia, Finland, France, Germany, Japan and the USA when the threshold unit root test of Caner and Hansen is rigorously implemented.

Does Unemployment Still Follow Hysteresis Hypothesis in Nigeria? Evidence from Linear and Nonlinear Unit Root Test Methods

“…Khraief, et al (2015), however, noted that accounting for a structural break in the data could alter the results. By considering 29 OECD countries while accounting for a structural break, they found that UHH is rejected in all the 29 OECD countries (see also Lin, Kuo and Yuan, 2008). Kula and Aslan (2010) considered the testing of UHH along with the level of educational attainment.…”