Modelling Structural Breaks in the US, UK and Japanese Unemployment Rates
Guglielmo Maria Caporale
London South Bank University; Brunel University - Brunel Business School; CESifo (Center for Economic Studies and Ifo Institute)
Luis A. Gil-Alana
University of Navarra - Department of Economics
CESifo Working Paper Series No. 1734
In this paper we use a general procedure to detect structural breaks at unknown points in time which allows for different orders of integration and deterministic components in each subsample (see Gil-Alana, 2006). First, we extend it to the non-linear case, and show by means of Monte Carlo experiments that the procedure performs well in a non-linear environment. Second, we apply it to test for breaks in the unemployment rate in the US, the UK and Japan. Our results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsample). We interpret these findings in terms of different labour market features.
Number of Pages in PDF File: 40
Keywords: unemployment, structural breaks, fractional integration
JEL Classification: C32, E32working papers series
Date posted: June 13, 2006
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