Wissem Boukraine

= http://dx.doi.org/10.20473/jde.v6i1.22617

Abstract views = 567 times | downloads = 398 times


Business cycles pave the way for asymmetry in the unemployment rate behavior with rapid increases during recessions and slight decreases in expansions. It, in turn, may raise the non-accelerating inflation rate of unemployment and the cost in terms of inflation of any demand stimulus policy. The recent jump in unemployment worldwide due to the COVID-19 pandemic and the government’s stimulus package following it raises questions about the cost of such a decision. We use the smooth transition model (STR) to analyze unemployment dynamics on quarterly data over the last two decades for fifteen middle-income countries. Our results suggest the absence of hysteresis except for Bulgaria, Mexico, and Ukraine. Our policy recommendation for these countries is the necessity of labor market reforms, as hysteresis will considerably reduce any economic stimulus on unemployment.

Keywords: Unemployment, hysteresis, STR

JEL Classification: C10, J60

Full Text:



Akdogan, K. (2017). Unemployment hysteresis and structural change in Europe. Empirical Economics, 53(4), 1415–1440. https://doi.org/10.1007/s00181-016-1171-8

Baker, S. R., Farrokhnia, R. A., Meyer, S., Pagel, M., & Yannelis, C. (2020). How does household spending respond to an epidemic? consumption during the 2020 COVID-19 pandemic. In Review of Asset Pricing Studies (Vol. 10, Issue 4, pp. 834–862). https://doi.org/10.1093/rapstu/raaa009

Ball, L. (2014). Long-term damage from the great recession in OECD countries. European Journal of Economics and Economic Policies: Intervention, 11(2), 149–160. https://doi.org/10.4337/ejeep.2014.02.02

Blanchard, O. J., & Summers, L. H. (1986). Hysteresis and the European Unemployment Problem. NBER Macroeconomics Annual, 1, 15–90. https://doi.org/10.2307/3585159

Bolat, S., Tiwari, A. K., & Erdayi, A. U. (2014). Unemployment hysteresis in the Eurozone area: Evidences from nonlinear heterogeneous panel unit root test. Applied Economics Letters, 21(8), 536–540. https://doi.org/10.1080/13504851.2013.872755

Camarero, M., Carrion-I-Silvestre, J. L., & Tamarit, C. (2006). Testing for hysteresis in unemployment in OECD countries: New evidence using stationarity panel tests with breaks. Oxford Bulletin of Economics and Statistics, 68(2), 167–182. https://doi.org/10.1111/j.1468-0084.2006.00157.x

Canarella, G., Gupta, R., Miller, S. M., & Pollard, S. K. (2019). Unemployment rate hysteresis and the great recession: exploring the metropolitan evidence. Empirical Economics, 56(1), 61–79. https://doi.org/10.1007/s00181-017-1361-z

Chang, T. (2011). Hysteresis in unemployment for 17 OECD countries: Stationary test with a Fourier function. Economic Modelling, 28(5), 2208–2214. https://doi.org/10.1016/j.econmod.2011.06.002

Cheng, K. M., Durmaz, N., Kim, H., & Stern, M. L. (2012). Hysteresis vs. natural rate of US unemployment. Economic Modelling, 29(2), 428–434. https://doi.org/10.1016/j.econmod.2011.11.012

Cowan, B. W. (2020). Short-run effects of COVID-19 on US worker transitions. NBER Working Papers 27315. https://ideas.repec.org/p/nbr/nberwo/27315.html

Cuestas, J. C., Gil-Alana, L. A., & Staehr, K. (2011). A further investigation of unemployment persistence in European transition economies. Journal of Comparative Economics, 39(4), 514–532. https://doi.org/10.1016/j.jce.2011.09.002

Enders, W. (2010). Applied Econometric Times Series. In John Wiley & Sons Inc, New York.

Faia, E., Lechthaler, W., & Merkl, C. (2013). Fiscal stimulus and labor market policies in Europe. Journal of Economic Dynamics and Control, 37(3), 483–499. https://doi.org/10.1016/j.jedc.2012.09.004

Forsythe, E., Kahn, L. B., Lange, F., & Wiczer, D. (2020). Labor demand in the time of COVID-19: Evidence from vacancy postings and UI claims. Journal of Public Economics, 189. https://doi.org/10.1016/j.jpubeco.2020.104238

Fosten, J., & Ghoshray, A. (2011). Dynamic persistence in the unemployment rate of OECD countries. Economic Modelling, 28(3), 948–954. https://doi.org/10.1016/j.econmod.2010.11.007

Friedman, M. (1995). The Role of Monetary Policy. In S. Estrin & A. Marin (Eds.), Essential Readings in Economics (pp. 215–231). Macmillan Education UK. https://doi.org/10.1007/978-1-349-24002-9_11

Furuoka, F. (2014). Are unemployment rates stationary in asia-pacific countries? New findings from fourier adf test. Economic Research-Ekonomska Istrazivanja, 27(1), 34–45. https://doi.org/10.1080/1331677X.2014.947105

Furuoka, F. (2017). A new approach to testing unemployment hysteresis. Empirical Economics, 53(3), 1253–1280. https://doi.org/10.1007/s00181-016-1164-7

Gozgor, G. (2013). Testing Unemployment Persistence in Central and Eastern European Countries. International Journal of Economics and Financial Issues, 3(3), 694–700.

Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2020). Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3570096

Güriş, B., Tiftikçigil, B. Y., & Tıraşoğlu, M. (2017). Testing for unemployment hysteresis in Turkey: evidence from nonlinear unit root tests. Quality and Quantity, 51(1), 35–46. https://doi.org/10.1007/s11135-015-0292-z

Hsi Chiung, C., & Yi Chung, Z. (2012). Unemployment hysteresis in G20 countries: Evidence from non-linear panel unit-root tests. African Journal of Business Management, 6(49), 11887–11890. https://doi.org/10.5897/ajbm10.721

Internation Labour Organization. (2021). ILO Monitor: COVID-19 and the world of work seventh edition. In International Labour Organization (Issue April).

Khraief, N., Shahbaz, M., Heshmati, A., & Azam, M. (2020). Are unemployment rates in OECD countries stationary? Evidence from univariate and panel unit root tests. North American Journal of Economics and Finance, 51. https://doi.org/10.1016/j.najef.2018.08.021

Lee, H. Y., Wu, J. L., & Lin, C. H. (2010). Hysteresis in east asian unemployment. Applied Economics, 42(7), 887–898. https://doi.org/10.1080/00036840701720895

Liew, V. K. Sen, Chia, R. C. J., & Puah, C. H. (2012). Does hysteresis in unemployment occur in OECD countries? Evidence from parametric and non-parametric panel unit roots tests. International Journal of Economics and Management, 6(2), 446–458.

Logeay, C., & Tober, S. (2006). Hysteresis and the Nairu in the Euro area. Scottish Journal of Political Economy, 53(4), 409–429. https://doi.org/10.1111/j.1467-9485.2006.00387.x

Marques, A. M., Lima, G. T., & Troster, V. (2017). Unemployment persistence in OECD countries after the Great Recession. Economic Modelling, 64, 105–116. https://doi.org/10.1016/j.econmod.2017.03.014

Montenovo, L., Jiang, X., Rojas, F. L., Schmutte, I. M., Simon, K. I., Weinberg, B. A., & Wing, C. (2020). Determinants of Disparities in COVID-19 Job Losses. NBER Worikng Papers, 1689–1699.

Neftçi, S. N. (1984). Are Economic Time Series Asymmetric over the Business Cycle? Journal of Political Economy, 92(2), 307–328. https://doi.org/10.1086/261226

Oliskevych, M. (2015). Hysteresis, structural shocks and common trends in labor market: consequence for Ukraine. Ikonomicheski Izsledvania, 24(4), 120–137.

Ozdemir, Z. A., Balcilar, M., & Tansel, A. (2013). International labour force participation rates by gender: Unit root or structural breaks? Bulletin of Economic Research, 65(1), 142 164. https://doi.org/10.1111/j.1467-8586.2011.00419.x

Perron, P. (1989). The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis. Econometrica, 57(6), 1361–1401. https://doi.org/10.2307/1913712

Roed, K. (1997). Hysteresis in Unemployment. Journal of Economic Surveys, 11(4), 389–418. https://doi.org/doi.org/10.1111/1467-6419.00040

Terasvirta, T. (1994). Specification, Estimation, and Evaluation of Smooth Transition Autoregressive Models. Journal of the American Statistical Association, 89(425). https://doi.org/10.2307/2291217

Terasvirta, T. (1998). Modeling economic relationships with smooth transition regressions. In Handbook of applied economic statistics (pp. 507–552).

Woodward, G., & Anderson, H. M. (2009). Does beta react to market conditions? Estimates of ‘bull’ and ‘bear’ betas using a nonlinear market model with an endogenous threshold parameter. Quantitative Finance, 9(8), 913–924. https://doi.org/10.1080/14697680802595643

Yaya, O. O. S., Ogbonna, A. E., & Mudida, R. (2019). Hysteresis of unemployment rates in Africa: new findings from Fourier ADF test. Quality and Quantity, 53(6), 2781–2795. https://doi.org/10.1007/s11135-019-00894-6


  • There are currently no refbacks.

Copyright (c) 2021 Wissem Boukraine

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

This journal is indexed by:


View My Stats


This Journal is Published by:

Department of Economics, Faculty of Economics and Business, Universitas Airlangga

Address : Jalan Airlangga 4 Surabaya 60286, Jawa Timur, Indonesia

E-mail : jde@feb.unair.ac.id

Lisensi Creative Commons
JDE (Journal of Developing Economies) (p-ISSN: 2541-1012; e-ISSN: 2528-2018) is licensed under a Creative Commons Attribution 4.0 International License