Hysteresis in unemployment: empirical evidence from Taiwan's region data based on panel unit root tests

Abstract

In this study, we test the hysteresis hypothesis in unemployment for Taiwan's 21 regional data sets using the Levin et al . (2002), Im et al . (2003) and Taylor and Sarno (1998) panel-based unit root tests for the June 1993 to September 2001 period. The results from all three tests provide evidence that based on Taiwan's regional unemployment data the hysteresis hypothesis can justifiably be rejected.

Acknowledgements

The authors are grateful to Professors Peter Pedroni and David E. Rapach who kindly provided the RATS and GAUSS program codes, respectively. The authors also thank an anonymous referee and the APE's editor Professor Mark Taylor for their several helpful comments, suggestions and time spent in reading this article. These all make this article more valuable and readable. Any errors that remain are my own.

Notes

¹ The finding of a unit root in unemployment would imply that this series does not fluctuate around a predictable level. Under this scenario, all shocks permanently alter the unemployment rate with no tendency to return to some stable ‘natural rate.’ Obvious implications arise regarding policy actions to counteract shocks to unemployment depending on whether they are permanent or temporary.