Two Structural Breaks and the Unit Root Hypothesis: New Evidence About Unemployment in Australia

Abstract

Following Konya (2000a, 2000b), this paper is the third in a series analyzing unemployment in Australia in the period of 1960 to 1997 with special regard to the unit-root versus stationarity hypotheses. It provides new evidence by allowing for the possibility of two endogenous breaks in the deterministic trend function under the stationarity alternative hypothesis. The unit root null hypothesis cannot be rejected for the rate and level of unemployment, but their logarithms seem to be trend stationary with a structural break in 1981-82 and in 1990 or 1994, respectively. Apart from this second possible break, these results are very similar to the unit root test results of Konya (2000b) with only one break under the alternative hypothesis.

Keywords: Australia, unemployment, unit root, structural break

JEL Classification: C12, C22