Non-Linearities and Fractional Integration in the Us Unemployment Rate

23 Pages Posted: 5 Feb 2004

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Date Written: 2004

Abstract

This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach, based on the tests of Robinson (1994), introduces fractional integration and nonlinearities simultaneously into the same framework (unlike earlier studies employing a sequential procedure), using a Lagrange Multiplier procedure with a standard limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some non-linear functions of the labour demand variables (real oil prices and real interest rates). We also find evidence of a long-memory component. Our results are consistent with a hysteresis model with path dependency rather than a NAIRU model with an underlying unemployment equilibrium rate, hence giving support to more activist stabilisation policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policymaking.

Keywords: Unemployment, Asymmetries, Nonlinearities, Fractional Integration, Persistence, Long Memory

JEL Classification: C32, E32

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A., Non-Linearities and Fractional Integration in the Us Unemployment Rate (2004). Available at SSRN: https://ssrn.com/abstract=494082 or http://dx.doi.org/10.2139/ssrn.494082

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
106
Abstract Views
950
rank
281,133
PlumX Metrics