Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies?

Nsenga, Dieu and Nach, Mirada and Khobai, Hlalefang and Moyo, Clement and Phiri, Andrew (2018): Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies?

Abstract

The focus of our study is on determining whether unemployment rates in 8 New Industrialized Economies conform to the natural rate hypothesis or the hysteresis hypothesis. To this end, we employ a variety of unit of unit root testing procedures to quarterly data collected between 2002:q1 and 2017:q1. In summary of our findings, conventional unit root tests which neither account for asymmetries or structural breaks produce the most inconclusive results. On the other hand, tests which incorporate structural breaks whilst ignoring asymmetries tends to favour the natural rate hypothesis for our panel of countries. However, simultaneously accounting for asymmetries and unobserved structural breaks seemingly produces the most robust findings and confirms hysteresis in all unemployment rates except for the Asian economies/countries of Thailand and the Philippines.

• Item Type: MPRA Paper
• Language: English
• Keywords: Natural rate hypothesis; hysteresis hypothesis; Unemployment; unit root tests; Fourier function approximation; Newly Industrialized Economies
• Subjects: 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 > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J60 - General

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