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- Title
EVALUATING PERSISTENCE IN THE UNEMPLOYMENT RATE OF EMERGING EUROPEAN ECONOMIES.
- Authors
Mladenovic, Zorica; Anic, Aleksandra
- Abstract
Alternative unemployment theories imply different dynamic characteristics of the unemployment rate time-series. Therefore, timeseries econometric methods provide a methodological framework for testing the validity of the two most important theories of unemployment: the theory of unemployment hysteresis and the theory of the natural rate of unemployment. Discrimination between the two theories is based on the empirical assessment of whether unexpected random shocks have a long-lasting effect on unemployment. The purpose of this paper is to evaluate the persistence of the unemployment rate in the following emerging European countries: Slovenia, Slovakia, the Czech Republic, Poland, Hungary, Cyprus, Malta, Estonia, Latvia and Lithuania. The unemployment rate in the EU15 is also analyzed. Monthly time series are collected from 2004 when these countries joined the EU. The sample ends in mid-2015. The econometric analysis has three steps. First, ordinary unit-root tests are employed, showing that almost all series are non-stationary. Second, the Lee-Strazicich unit-root test designed to handle up to two structural breaks is applied, providing results opposite to those first reached. Third, given that a linear specification may be inadequate to capture the true dynamics in the unemployment rate, the Markovswitching autoregressive model is used. The model outperforms a standard linear specification in several economies.
- Subjects
LITHUANIA; SLOVENIA; UNEMPLOYMENT statistics; TIME series analysis; HYSTERESIS (Economics); ECONOMETRIC models
- Publication
Current Politics & Economics of Europe, 2016, Vol 27, Issue 2, p291
- ISSN
1057-2309
- Publication type
Article