Is there hysteresis in unemployment rates?
This paper investigates if there is hysteresis in unemployment rates for 8 OECD countries. Univariate unit root tests (ADF and KPSS tests) are performed as an initial analysis of the unemployment rates. These tests suggest that the hysteresis hypothesis is true. Since traditional unit root test have low power against fractionally integrated alternatives, the Sowell’s (1992) exact maximum likeliho