Unemployment Hysteresis: Empirical Evidence for Latin America
Journal of Applied Economics. Vol XV, No. 2 (November 2012), 213-233
Posted: 30 Nov 2012
Date Written: 2012
This paper analyzes the unemployment dynamics of 18 Latin American countries for the last four decades. We use a time series approach to test the mean reversion of unemployment rates and its approximation to a Natural Rate of Unemployment (NRU). The tests include the possibility of one and two structural changes to account for the occurrence of significant macroeconomic changes experienced by the Latin American economies. In addition, we estimate the order of integration of the series, allowing for fractional degrees of differentiation, to assess the persistence of unemployment in the region. Our results indicate that when endogenous structural changes are included in the model, in general we find evidence of mean reversion of unemployment rates for the Latin American countries under study. Therefore, our findings support the structuralist hypothesis of unemployment.
Keywords: Latin America, unemployment, hysteresis hypothesis, unit root tests, endogenous structural changes, fractional integration
JEL Classification: C32, E24, O54
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