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.
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Notes
Regarding the tests on breaks of the distribution, we allow for two types of breaks: (1) breaks in the deterministic terms using dummy variable and Fourier expansion. (2) Allow that the auto-regressive term (ρ) differ among distribution of unemployment, in other words, we estimate the auto-regressive term (ρ) for each part of distribution.
Our study adjusted for smooth and sharp breaks are based on the breaks at the conditional mean and the paper does not test for breaks in the entire distribution.
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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.
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Jiang, Y., Cai, Y., Peng, YT. et al. Testing Hysteresis in Unemployment in G7 Countries Using Quantile Unit Root Test with both Sharp Shifts and Smooth Breaks. Soc Indic Res 142, 1211–1229 (2019). https://doi.org/10.1007/s11205-018-1948-6
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DOI: https://doi.org/10.1007/s11205-018-1948-6