Hysteresis in Unemployment: Evidence from 48 U.S. States

Economic Inquiry, Vol. 35, No. 2, April 1997

Posted: 17 Jul 1998

See all articles by Frank M. Song

Frank M. Song

The University of Hong Kong - School of Economics and Finance

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics

Abstract

Studies using standard unit-root tests generally cannot reject the hypothesis of a unit root in unemployment rates. These findings have been interpreted as supporting the hysteresis hypothesis. We demonstrate that the failure to reject the null may be due to the low power of the tests. We analyze unemployment rates of 48 U.S. contiguous states using a more powerful panel-based test which exploits cross-section restrictions on the constituent series. The critical values are simulated tailored to our sample size. We reject the null decisively, casting some doubt on the hysteresis hypothesis for the United States.

JEL Classification: E2, E0

Suggested Citation

Song, Frank M. and Wu, Yangru, Hysteresis in Unemployment: Evidence from 48 U.S. States. Economic Inquiry, Vol. 35, No. 2, April 1997, Available at SSRN: https://ssrn.com/abstract=108567

Frank M. Song (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1146 (Phone)
973-353-1006 (Fax)

HOME PAGE: http://andromeda.rutgers.edu/~yangruwu

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