Abstract.
This paper proposes a new testing strategy for unemployment hysteresis as the joint restriction of a unit-root in the unemployment rate and no feedback effect of unemployment in the Phillips wage equation. The associated test statistics are derived when this joint restriction is imposed and when a sequential two steps testing strategy is adopted. An empirical application leads to reject the null hypothesis of wage hysteresis for most of our OECD countries. Evidence against hysteresis is reinforced when accounting for wage adjustments in the bivariate approach.
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First version received: July 1999/Final version received: May 2002
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ID="*" We thank R. Boyer, F. Collard, F. Karamé, F. Langot, F. Mihoubi, W. Pohlmeier and two anonymous referees for fruitful comments. This paper has also benefited from discussions at the T2M conference (Montréal, may 1999) and ESEM99 (Santiago, august 1999). The traditional disclaimer applies.
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Fève, P., Hénin, P. & Jolivaldt, P. Testing for hysteresis: Unemployment persistence and wage adjustment. Empirical Economics 28, 535–552 (2003). https://doi.org/10.1007/s001810200144
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DOI: https://doi.org/10.1007/s001810200144