Hysteresis in Unemployment: Evidence from 48 U.S. States
Economic Inquiry, Vol. 35, No. 2, April 1997
Posted: 17 Jul 1998
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: Suggested Citation