Abstract
This paper investigates the relevance of unemployment hysteresis in seventeen OECD countries. We employ an out-of-sample forecast exercise in which a mean-reverting autoregressive model is compared to an autoregressive model with an imposed unit root. A substantial difference in forecasting performance between the two models is established for many countries, but the results are mixed in their strength. The evidence for unemployment hysteresis in Austria, Finland, Iceland, Israel, Italy, Japan and Sweden is, however, convincing. For no country can unambiguous support for a mean reverting unemployment rate be found.
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Gustavsson, M., Österholm, P. The presence of unemployment hysteresis in the OECD: what can we learn from out-of-sample forecasts?. Empir Econ 38, 779–792 (2010). https://doi.org/10.1007/s00181-009-0290-x
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DOI: https://doi.org/10.1007/s00181-009-0290-x