A PANIC Attack on Inflation and Unemployment in Africa: Analysis of Persistence and Convergence

DO ANGO, Simplicio and AMBA OYON, Claude Marius (2016): A PANIC Attack on Inflation and Unemployment in Africa: Analysis of Persistence and Convergence. Published in: The Empirical Economics Letters , Vol. 15, (2016)

Abstract

The purpose of the study is to analyze the nature of inflation and unemployment rates -in Africa and its regions- allowing cross-sectional dependence among their countries. The paper contributes to the literature assessing the stochastic properties of unemployment and inflation using the recently developed and more powerful panel unit root tests namely PANIC -Panel Analysis of Non-stationarity in Idiosyncratic and Common Component- from Bay and Ng (2010). To check the robustness of our finding we added Pesaran (2007) and Chang (2002). In our analysis, many PANIC tests clearly show that the validation of the hysteresis hypothesis for unemployment rates in Central Africa, East Africa and North Africa; and convergence of inflation in Africa and its regions

• Item Type: MPRA Paper
• Language: English
• Keywords: Panel unit root tests, PANIC, Unemployment, Inflation, African countries
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

References

Bai, J. & Perron P. (1998) “Estimating and testing linear models with multiple structural changes.” Econometrica, 66(1): 47–68.

Bai, J. & Perron P. (2003) “Computation and analysis of multiple structural change models.” Journal of Applied Econometrics, 18(1): 1–22.

Bai, J. & S. Ng (2004) A PANIC attack on unit roots and cointegration. Econometrica 72, 1127–1177.

Bakas, D. and Papapetrou, E. (2012). “Unemployment in Greece: Evidence from Greek regions”, Bank of Greece Working Paper, No: 146

Carrion-i-Silvestre, J.L., Barrio-Castro, T.D. and Lopez-Bazo, E. (2005). “Breaking the panels: An application to the GDP per capita”, Econometrics Journal, 8, 159-175.

Chang, T., Yang, M.J., Liao, H.C. and Lee, C.H. (2007). “Hysteresis in unemployment: Empirical evidence from Taiwan's region data based on panel unit root tests”, Applied Economics, 39, 1335-1340.

Chang Y. Nonlinear IV unit root tests in panels with cross-sectional dependency. Journal of Econometrics 2002; 110: 261-292

Choi, I. (2001). “Unit root tests for panel data”, Journal of International Money and Finance, 20, 249-272.

Choi, I. (2006). “Combination unit root tests for cross sectionally correlated panels”, Econometric Theory and Practice: Frontiers of analysis and Applied Research: Essays in Honor of Peter C.B. Phillips, Cambridge: Cambridge University Press, 311-333.

Dickey, D.A. & Fuller, W.A. (1981) “Distribution of the estimators for autoregressive time series with a unit root.” Econometrica, 49: 1057-72.

Filiztekin, A. (2009). “Regional unemployment in Turkey”, Papers in Regional Science, 88, 863-878.

Gomes, F.A.R. and Da Silva, C.G. (2009). “Hysteresis versus NAIRU and convergence versus divergence: The behavior of regional unemployment rates in Brazil”, Quarterly Review of Economics and Finance, 49, 308-322.

Gozgor, G. (2012). “Hysteresis in regional unemployment rates in Turkey”, International Journal of Economics and Finance, 4, 175-181.

Gozgor, G. and Piskin, A. (2011). “Unemployment and trade: Generalized method of moments-dynamic panel data approach for regions of Turkey” (In Turkish), Business and Economics Research Journal, 2, 121-138.

Hadri, K. (2000) “Testing for stationarity in heterogeneous panel data.” The Econometrics Journal, 3(2): 148–161.

Im, K.S., Pesaran, M.H. and Shin, Y. (2003). “Testing for unit roots in heterogeneous panels”, Journal of Econometrics, 115, 53-74.

Lanzafame, M. (2012). “Hysteresis and the regional NAIRU’s in Italy”, Bulletin of Economic Research, 64, 415-429.

Lee, J. and Strazicich, M.C. (2003). “Minimum Lagrange multiplier unit root test with two structural breaks”, Review of Economics and Statistics, 85, 1082-1089.

Leon-Ledesma, M.A. (2002). “Unemployment hysteresis in the US and the EU: A panel data approach”, Bulletin of Economic Research, 54, 95-105.

Levin, A., Lin, C.F. and Chu, C. (2002). “Unit root tests in panel data: Asymptotic and finite-sample properties”, Journal of Econometrics, 108, 1-24.

Ng, S. & Perron, P. (2001) “Lag selection and the construction of unit root tests with good size and power.” Econometrica, 69: 1519–1554.

Pesaran, M.H. (2007) “A simple Panel Unit Root Test in the Presence of Cross Section Dependence.” Journal of Applied Econometrics, 22 (2), pp. 265-312.

Phillips, P.C.B. & R. Moon (1999) Linear regression limit theory for nonstationary panel data. Econometrica 67, 1057–1111

Phillips, P.C.B and Perron, P. (1988). “Testing for a Unit Root in Time Series Regression.” Biometrika, 75: 335–346.

Romer, D. (2006). Advanced Macroeconomics, Third edition, New York: McGrawHil/Irwin.

Romero-Avila, D. and Usabiaga, C. (2008). “On the persistence of Spanish unemployment rates”, Empirical Economics, 35, 77-99.

Romero-Avila, D. and Usabiaga, C. (2012). “Disaggregate evidence on Spanish inflation persistence”, Applied Economics, 44, 3029-3046.

Sargan, J.D. & A. Bhargava (1983) Testing for residuals from least squares regression being generated by Gaussian random walk. Econometrica 51, 153–174.

Smyth, R. (2003). “Unemployment hysteresis in Australian states and territories: Evidence from panel data unit root tests”, Australian Economic Review, 36, 181-192.

Song, F.M. and Wu, Y. (1997). “Hysteresis in unemployment: Evidence from 48 U.S. states”, Economic Inquiry, 35, 235-243.

Song, F.M. and Wu, Y. (1998). “Hysteresis unemployment: Evidence from OECD countries”, Quarterly Review of Economics and Finance, 38, 181-192.

Taylor, M. and Sarno, L. (1998). “The behavior of real exchanges during the post-Bretton Woods period”, Journal of International Economics, 46, 281-312.

Yilmazkuday, H. (2013). “Inflation targeting, flexible exchange rates and inflation convergence”, Applied Economics, 45, 594-603.