Advertisement

Social Indicators Research

, Volume 142, Issue 3, pp 1211–1229 | Cite as

Testing Hysteresis in Unemployment in G7 Countries Using Quantile Unit Root Test with both Sharp Shifts and Smooth Breaks

  • Yushi Jiang
  • Yifei Cai
  • Yi-Ting Peng
  • Tsangyao ChangEmail author
Article
  • 152 Downloads

Abstract

We apply a Quantile unit root test with both Sharp Shifts and Smooth Breaks to revisit hysteresis in unemployment for G7 countries using data for the period 1980–2017. Results from the conventional unit root tests indicate that hysteresis in unemployment does hold in half of these G7 countries during the period 1980–2017. A quantile Kolmogorov–Smirnov test fails to reject hysteresis in the unemployment hypothesis for our quarterly data but not in monthly data in G7 countries. Empirical results from our proposed quantile unit root test considering both sharp shifts and smooth breaks indicate that hysteresis in unemployment can be rejected over certain quantiles. A quantile Kolmogorov–Smirnov test results demonstrating hysteresis in unemployment does not hold in G7 countries for both monthly and quarterly data. These empirical findings have important policy implications in G7 countries.

Keywords

Quantile unit root test Hysteresis Unemployment Sharp shifts and smooth breaks 

JEL Classification

C12 C22 E24 

Notes

Acknowledgements

The first author, Yushi Jiang acknowledges financial support from National Natural Science Foundation of China in 2014. No: 71572156. The second Author, Yifei Cai acknowledges the support of “ University Postgraduate Award (UPA) and an Australian Government Research Training Program Scholarship (RTP)” at The University of Western Australia.

References

  1. Bahmani-Oskoee, M., Chang, T., Tzeng, H-W., & Chen T-H (2015) Bringing quantile unit root test back to retesting purchasing power parity: The roles of sharp shifts and smooth breaks, Working paper, No. 201511, Department of Finance, Feng Chia University, Taichung, TAIWAN.Google Scholar
  2. Becker, R., Enders, W., & Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks. Journal of Time Series Analysis, 27(3), 381–409.CrossRefGoogle Scholar
  3. Blanchard, O., & Summers, L. (1986). Hysteresis and the European unemployment problem. In Stanley Fischer (Ed.), NBER macroeconomics annual (Vol. 1). Cambridge, MA: MIT Press.Google Scholar
  4. Bolat, S., Tiwari, A. K., & Erdayi, A. U. (2014). Unemployment hysteresis in the eurozone area: evidences from nonlinear heterogeneous panel unit root test. Applied Economics Letters, 21(8), 536–540.CrossRefGoogle Scholar
  5. Brunello, G. (1990). Hysteresis and “the Japanese unemployment problem”: A preliminary investigation. Oxford Economic Papers, 42(3), 483–500.CrossRefGoogle Scholar
  6. Campbell, J. Y., & Mankiw, N. G. (1987). Are output fluctuations transitory? The Quarterly Journal of Economics, 102(4), 857–880.CrossRefGoogle Scholar
  7. Caner, M., & Hansen, B. (2001). Threshold autoregression with a unit root. Econometrica, 69(6), 1555–1596.CrossRefGoogle Scholar
  8. Carrion-i-Silvestre, L. J., Barrio-Castro, D., & López-Bazo, E. (2005). Breaking the panels: An application to the GDP per capita. The Econometrics Journal, 8(2), 159–175.CrossRefGoogle Scholar
  9. Chang, T. (2011). Hysteresis in unemployment for 17 OECD countries: Stationary test with a fourier function. Economic Modelling, 28(5), 2208–2214.CrossRefGoogle Scholar
  10. Chang, T., Ho, Y.-H., & Huang, C.-J. (2007). Revisiting hysteresis in unemployment for ten European countries: an empirical note on a more powerful nonlinear (logistic) unit root. Journal of Economic Development, 32(1), 49–57.Google Scholar
  11. Chang, T., & Lee, Kuei-Chiu. (2011a). Hysteresis in unemployment for G-7 countries: Fourier unit root test. Economic and Finance Review, 1(2), 1–12.Google Scholar
  12. Chang, T., & Lee, Chia-Hao. (2011b). Hysteresis in unemployment for G-7 countreis: Threshold unit root test. Romanian Journal of Economic Forecasting, 14(4), 5–14.Google Scholar
  13. Enders, W., & Holt, M. T. (2012). Sharp breaks or smooth shifts? An investigation of the evolution of primary commodity prices. American Journal of Agricultural Economics, 94(3), 659–673.CrossRefGoogle Scholar
  14. Enders, W., & Lee, J. (2012). A unit root test using a Fourier series to approximate smooth breaks. Oxford Bulletin of Economics and Statistics, 74(4), 574–599.CrossRefGoogle Scholar
  15. Furuoka, F. (2014). Are unemployment rates stationary in Asia-Pacific countries? New findings from Fourier ADF test. Economic Research, 27(1), 34–45.Google Scholar
  16. Gallant, A. R. (1981). On the bias in flexible functional forms and an essentially unbiased form. Journal of Econometrics, 15(2), 211–245.CrossRefGoogle Scholar
  17. Gustavsson, M., & Osterholm, P. (2010). The presence of unemployment hysteresis in the OECD: What can we learn from out-of-sample forecasts? Empirical Economics, 38(3), 779–792.CrossRefGoogle Scholar
  18. Jaeger, A., & Parkinson, M. (1994). Some evidence on hysteresis in unemployment rates. European Economic Review, 38, 329–342.CrossRefGoogle Scholar
  19. Koenker, R., & Xiao, Z. (2004). Unit root quantile autoregression inference. Journal of the American Statistical Association, 99(467), 775–787.CrossRefGoogle Scholar
  20. Lee, C.-F., Hu, T.-C., Li, P.-C., & Tsong, C.-C. (2013). Asymmetric behaviour of unemployment rates: evidence from the quantile covariate unit root test. Japan and the World Economy, 28, 72–84.CrossRefGoogle Scholar
  21. Lee, H.-Y., Wu, J.-L., & Lin, C.-C. (2010). Hysteresis in East Asia unemployment. Applied Economics, 42(7), 887–898.CrossRefGoogle Scholar
  22. Leybourne, S. J., Mills, T. C., & Newbold, P. (1998). Spurious rejections by Dickey—Fuller tests in the presence of a break under the null. Journal of Econometrics, 87(1), 191–203.CrossRefGoogle Scholar
  23. Lin, C.-H., Kuo, N.-F., & Yuan, C.-D. (2008). Nonlinear vs. nonstationary of hysteresis in unemployment: evidence from OECD economies. Applied Economics Letters, 15(11), 905.CrossRefGoogle Scholar
  24. Mitchell, W. F. (1993). Testing for unit roots and persistence in OECD unemployment rates. Applied Economics, 25, 1489–1501.CrossRefGoogle Scholar
  25. Ng, S., & Perron, P. (2001). Lag length selection and the construction of unit root tests with good size and power. Econometrica, 69(6), 1519–1554.CrossRefGoogle Scholar
  26. Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 55, 277–302.Google Scholar
  27. Roed, K. (1996). Unemployment hysteresis—macro evidence from 16 OECD countries. Empirical Economics, 21, 589–600.CrossRefGoogle Scholar
  28. Tsong, C. C., & Lee, C. F. (2011). Asymmetric inflation dynamics: Evidence from quantile regression analysis. Journal of Macroeconomics, 33(4), 668–680.CrossRefGoogle Scholar

Copyright information

© Springer Nature B.V. 2018

Authors and Affiliations

  • Yushi Jiang
    • 1
  • Yifei Cai
    • 2
  • Yi-Ting Peng
    • 3
  • Tsangyao Chang
    • 4
    • 5
    Email author
  1. 1.School of Economics & ManagementSouthwest Jiaotong UniversityChengduChina
  2. 2.Economics, Business SchoolThe University of Western AustraliaPerthAustralia
  3. 3.Department of AccountingChaoyang University of TechnologyTaichungTaiwan
  4. 4.Department of FinanceFeng Chia UniversityTaichungTaiwan
  5. 5.School of FinanceHubei University of EconomicsWuhanChina

Personalised recommendations