Modelling Structural Breaks in the Us, UK and Japanese Unemployment Rates

40 Pages Posted: 13 Jun 2006

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: May 2006

Abstract

In this paper we use a general procedure to detect structural breaks at unknown points in time which allows for different orders of integration and deterministic components in each subsample (see Gil-Alana, 2006). First, we extend it to the non-linear case, and show by means of Monte Carlo experiments that the procedure performs well in a non-linear environment. Second, we apply it to test for breaks in the unemployment rate in the US, the UK and Japan. Our results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsample). We interpret these findings in terms of different labour market features.

Keywords: unemployment, structural breaks, fractional integration

JEL Classification: C32, E32

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A., Modelling Structural Breaks in the Us, UK and Japanese Unemployment Rates (May 2006). CESifo Working Paper Series No. 1734, Available at SSRN: https://ssrn.com/abstract=908510

Guglielmo Maria Caporale (Contact Author)

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

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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)

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Munich, DE-81679
Germany

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

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Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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