An empirical note on testing hysteresis in unemployment for ten European countries: panel SURADF approach

Abstract

The hysteresis hypothesis in unemployment for ten European countries are tested using newly developed Panel SURADF tests of Breuer et al. (2001) for the 1961–1999 period. While the other Panel-based unit root tests are joint tests of a unit root for all members of the panel and are incapable of determining the mix of I(0) and I(1) series in the panel setting, the Panel SURADF tests a separate unit-root null hypothesis for each individual panel member and, therefore identifies how many and which series in the panel are stationary processes. The hysteresis hypothesis is confirmed for all the European countries except Belgium and the Netherlands when Breuer et al.'s Panel SURADF tests are conducted.

Acknowledgements

The authors are grateful to Professor Myles S. Wallace who kindly provided the RATS program codes. The authors also thank an anonymous referee and the AEL's editor Professor Mark Taylor for their several helpful comments, suggestions and time spent in reading this paper. These all make this paper more valuable and readable. Any errors that remain are our own.

Notes

¹ Dixon and Shepherd (2001) point out that while it may be true that the unemployment series are stationary in the probability limit (here) one is dealing not only with a finite realization of the process, but also a sample period that is ‘very short’. In these circumstances, it is quite possible that the series may wander significantly within the interval, exhibiting characteristics that are, for all practical purposes, indistinguishable from an unrestricted random walk (see Smyth, 2003). Thus, the extant literature is followed and the issue of boundness is ignored in the present study.

² Due to data availability from the data source, only these ten countries are include in the present study. Germany was omitted as one of the countries tested because of the problem caused by reunification.