Testing the Unemployment Hysteresis for G-20 Countries

Testing the Unemployment Hysteresis for G-20 Countries

Veli Yilanci (Sakarya University, Turkey) and Mahmut Unsal Sasmaz (Usak University, Turkey)
DOI: 10.4018/978-1-5225-5757-9.ch019

Abstract

In this chapter, the authors analyze the validity of unemployment hysteresis for G-20 countries, namely Australia, Brazil, Canada, France, Germany, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa, Turkey, United Kingdom, and USA for the 1960–2014 period. For this purpose, they examine the stationarity of the unemployment rates by using ADF unit root test and Fourier ADF (FADF) unit root tests. FADF unit root test is a recently introduced test whose power is not affected by the number, location, and form of the breaks. The results of the tests show that the unemployment hysteresis is valid for some of the countries.
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Literature Review

Blanchard and Summers, (1986) tested the validity of unemployment hysteresis hypothesis in France, Germany, United Kingdom and United States in 1953-1984 period by using Dickey-Fuller (DF) and Augmented Dickey-Fuller (ADF) unit root tests. As a result of the study they identified that the unemployment hysteresis hypothesis was valid in all countries apart from the United States.

Key Terms in this Chapter

G-20 Countries: A group of 20 countries having high GDP levels.

FADF Unit Root Test: Fourier ADF unit root test.

Unemployment Hysteresis: The increasing unemployment rate following the shocks in an economy does not return to the previous level again.

ADF Unit Root Test: Tests the null hypothesis that a unit root is present in a time series sample.

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