Abstract
This paper investigates to what extent the observed nonlinearities in the unemployment rates of six major developed economies are the response to cyclical asymmetries. Two classes of models are compared: strict smooth transition autoregressions and models where the transition variable is GDP growth, which is considered a more direct indicator of the business cycle. The empirical evidence points out that nonlinearities in unemployment rates are induced by cyclical asymmetries. It is also found that in most countries the unemployment rate looks stationary and reverts to a long-run equilibrium rate in periods of normal growth, while in extreme cyclical situations it tends to become nonstationary as if each extreme cyclical episode had its own path of equilibrium.
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Acknowledgments
A previous version was presented at the 61st International Atlantic Economic Conference, Berlin, Germany, March 15–19, 2006. The author thanks the conference participants and an anonymous referee for their comments and suggestions.
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Cancelo, J.R. Cyclical Asymmetries in Unemployment Rates: International Evidence. Int Adv Econ Res 13, 334–346 (2007). https://doi.org/10.1007/s11294-007-9094-y
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DOI: https://doi.org/10.1007/s11294-007-9094-y