Dynamics of regional unemployment rates in Brazil: Fractional behavior,structural breaks,and Markov switching

This paper investigates unemployment dynamics in Brazil and in its major metropolitan regions using a fractional integration model. Aspects regarding structural breaks and regime switches are discussed as well. To do that, the methods proposed by Hassler and Meller (2009) and Tsay and Härdle (2009) are used. The major results indicate that unemployment rates have two different levels of persistence. The first one is nonstationary whereas the second one is nonstationary but mean-reverting. Based on these findings, the convergence hypothesis of regional unemployment rates was tested. Following the fractional stochastic convergence criterion put forward by Mello and Guimaraes-Filho (2007), it was concluded that regional unemployment rates are convergent.     

HYSTERESIS IN UNEMPLOYMENT REVISITED: EVIDENCE FROM PANEL LM UNIT ROOT TESTS WITH HETEROGENEOUS STRUCTURAL BREAKS

This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im  et al. ( Oxford Bulletin of Economics and Statistics , 67 (2005), pp. 393–419) to re-examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries.     

Do per capita health care expenditures converge among OECD countries? Evidence from unit root tests with level and trend-shifts

This study examines the stochastic conditional convergence of per capita health care expenditures (PCHCE) among 19 OECD countries over the period 1972–2008. Specifically, newly developed LM and RALS-LM unit root tests with allowance for two endogenously determined structural breaks are employed. The results indicate support for PCHCE convergence among most OECD countries. The results are stronger in more general tests that control for two breaks and nonnormal errors. Panel unit root tests provide additional support for the stochastic convergence of PCHCE.     

Evidence on the Convergence of Per Capita Income: A Comparison of Founder Members of the Association of South East Asian Nations and the South Asian Association of Regional Cooperation

This paper investigates the per capita income convergence patterns of a set of Association of South East Asian Nations (ASEAN) and South Asian Association of Regional Cooperation (SAARC) countries. We obtained a time‐series analysis for stochastic convergence by applying unit‐root tests in the presence of two endogenously‐determined structural breaks. We then supplemented the results by tests that produced evidence for β convergence. The evidence shows that the relative per capita income series of ASEAN‐5 countries were consistent with stochastic convergence and β convergence, but this was not found for SAARC‐5 countries. For the ASEAN‐5 countries, the structural breaks associated with the world oil crisis and the Asian crisis impacted heavily on the convergence/divergence process.     

Unemployment by Gender: Evidence from EU Countries

This paper applies panel unit-root tests that allow for structural breaks and cross-sectional dependence to examine the validity of hysteresis in gender unemployment rates and gender unemployment gap for a panel of 15 European countries. Addressing breaks, there is evidence to reject the null hypothesis of hysteresis for the unemployment rates and unemployment gap series. Allowing for both cross-sectional dependence and heterogeneous structural breaks, this result is reverted, and we fail to reject the null hypothesis of unit root.     

Stochastic convergence in per capita energy consumption and its catch-up rate: evidence from 26 African countries

Using annual data from 1971 to 2014, we examine stochastic conditional convergence in per capita energy consumption for 26 low income, lower middle-income and upper-middle-income African countries. To do so, we use panel unit root tests that allow for cross-sectional dependence and structural breaks as well as the recently developed univariate Residual Augmented Least Squares-Lagrange multiplier (RALS-LM) unit root test with structural breaks. Although for most countries our evidence suggests stochastic conditional convergence, we find divergence for four countries including DR Congo, Senegal, Egypt and Botswana. Consistent with the neoclassical growth models we also examine the catch-up rate between energy consumption levels of African economies and that one of China and investigate its convergence properties. As African economies continue to grow, regional energy consumption disparity narrows, African energy consumption levels will catch up to the ones in China.     

Structural Breaks and Convergence in the Regions of Peru: 1970–2010

The aim of this paper is the analysis of stochastic and β‐convergence in the relative regional per capita outputs using different unit root tests both with and without structural breaks and using a further test that is robust to the presence of I(0) or I(1) errors. It allows robust inference on the estimates of the initial per capita output (intercepts) and the respective growth rates (slopes). The results of the application of unit root tests without structural breaks show the absence of stochastic convergence. However, by incorporating the presence of endogenous breaks, the results are reversed for all regions. In the case of β‐convergence, the results of the robust test W_RQF show that all regions have a structural break at some point during the period 1970–2010. We find different behavior for different regions. There is a catching‐up process and a lagging‐behind process for different groups of regions towards more negative or more positive paths.     

Stochastic convergence of the catch-up rate and multiple structural breaks in Asian countries

Allowing for multiple structural breaks and cross-section dependence, we re-investigate the hypothesis that the catch-up rates stochastically converge for 13 Asian countries from 1960 to 2007. Non-rejection of stationarity provides evidence for stochastic convergence, implying that following shocks to the catch-up rate, it will eventually revert to its long-run level.     

Heterogeneous technology and the technological catching-up hypothesis: Theory and assessment in the case of MENA countries

Long run convergence implies that the convergence hypothesis will be rejected if the income differential is not stationary. However, this definition is valid only if the catching-up process between the two countries is already over. If we take into account catching-up dynamics, then poorest countries should obtain a faster growth than developed countries. Thus, income gaps should integrate decreasing time trends. We formalise this hypothesis theoretically using a stochastic neoclassical growth model with heterogeneous technology. We then apply this model to the issue of per-capita GDP catching-up of eight MENA countries towards the level of income in Europe. We approximate the nonlinear deterministic trend by a linear function with breaks and apply panel unit root tests with breaks. The analysis reveals firstly that the periods of divergence outnumber the periods of convergence. Secondly, since the year 2000 all countries but Syria have been converging toward the European per-capita income level.     

Real convergence: empirical evidence for Latin America

This article investigates the real convergence of 17 Latin American countries to the US economy for the period 1950 to 2011. Time series methods are used to test stochastic and β-convergence. These methods include the possibility of one or two structural changes. The results show that when endogenous structural changes are considered several Latin American countries exhibit stochastic convergence. Nevertheless, real convergence to the US is found only for three Latin American countries: Chile, Costa Rica and Trinidad and Tobago, with these countries also presenting evidence of stochastic and β-convergence.     

New evidence on the convergence of international income from a group of 29 countries

This paper updates and extends the time-series evidence on the convergence of international incomes using a set of 29 countries over the period 1900–2001. Time-series tests for stochastic convergence are supplemented with tests which provide evidence on the notion of “β-convergence” predicted by the Solow model. The evidence indicates that the relative income series of 21 countries are consistent with stochastic convergence, and that β-convergence has occurred in at least 16 countries at some point during the twentieth century. Further examination of the properties of the β-convergence test provides anecdotal evidence of conditional convergence in three additional countries for which the convergence hypothesis was initially rejected. Consideration of convergence clubs strengthens the evidence in favor of convergence. Analysis of the cross-country dispersion of incomes over time also suggests that convergence has occurred over the 1900–2001 period, particularly within certain clubs, with structural breaks associated with World War II in many countries causing a break in the convergence process.      

Panel data stochastic convergence analysis of the Mexican regions

The stochastic convergence amongst Mexican Federal entities is analyzed in panel data framework. The joint consideration of cross-section dependence and multiple structural breaks is required to ensure that the statistical inference is based on statistics with good statistical properties. Once these features are accounted for, evidence in favour of stochastic convergence is found. Since stochastic convergence is a necessary, but not sufficient, condition for convergence as predicted by economic growth models, the paper also investigates whether β-convergence process has taken place. We found that the Mexican states have followed either heterogeneous convergence patterns or divergence process throughout the analyzed period.     

ARE LABOUR FORCE PARTICIPATION RATES NON‐STATIONARY? EVIDENCE FROM 130 YEARS FOR G7 COUNTRIES*

This paper applies a unit root test with a non‐linear threshold to examine whether labour force participation rates are mean reverting for G7 countries using annual data over a 130 year period. We find some evidence of mean reversion for just over half the sample; however, this result is sensitive to regime shifts. We also examine whether the labour force participation rate is trend reverting through employing a lagrange multiplier (LM) unit root test with one and two structural breaks in the intercept and slope. The LM unit root test provides no additional evidence in support of stationarity. On the basis of the unit root tests for mean reversion we conclude that there is at best mixed evidence that long‐term changes in unemployment rates translate into long‐term changes in employment rates and that the unemployment rate is a useful indicator of joblessness.     

Convergence of per capita sulphur dioxide emissions across US states

This study examines the stochastic conditional convergence of sulphur dioxide (SO₂) emissions using the Residual Augmented Least Squares–Lagrange Multiplier (RALS–LM) unit root test with structural breaks. This procedure allows the data to account for trend breaks and nonnormal errors that have been ignored or deemphasized in previous studies. The study finds that per capita sulphur dioxide emissions exhibits stochastic conditional convergence across US states.     

The Global Financial Crisis and Stochastic Convergence in the Euro Area

This paper analyzes the issue of convergence in the original Euro Area countries, and assesses the effect of the global financial crisis on the process of convergence. In particular, we consider whether the global financial crisis pulled the 12 economies of the Euro Area together or pushed them apart. We investigate the dynamics of stochastic convergence of the original Euro Area countries for inflation rates, nominal interest rates, and real interest rates. We test for convergence relative to Germany, taken as the benchmark for core EU standards, using monthly data over the period January 2001 to September 2010. We examine, in a time-series framework, three different profiles of the convergence process: linear convergence, nonlinear convergence, and linear segmented convergence. Our findings both contradict and support convergence. Stochastic convergence implies the rejection of a unit root in the inflation rate, nominal interest rate, and real interest rate differentials. We find that the differentials are consistent with a unit-root hypothesis when the alternative hypothesis is a stationary process with a linear trend. We frequently, but not always, reject the unit-root hypothesis when the alternative is a stationary process with a broken trend. We also note that the current financial crisis plays a significant role in dating the breaks.     

On real interest rate persistence: the role of breaks

The role of structural breaks in long spans of ex-post real interest rates for 10 industrialized countries is studied. First, the persistence of the real interest is assessed with newly proposed low-frequency tests of Müller and Watson (2008). Second, the test of Leybourne et al. (2007) for a change in persistence of a time series is applied to the real interest rate. The results show that real interest rates over the full sample period do not fit a covariance-stationary or unit-root model, nor a fractionally integrated, near-unit-root or local-level model. Instead, the persistence of real rates changes over time and there are periods when the real rate is covariance-stationary and other periods when it follows a unit-root process.     

UNEMPLOYMENT, HYSTERESIS AND TRANSITION

In this paper, we quantify the degree of persistence in the unemployment rates of transition countries using a variety of methods benchmarked against the EU. Initially, we work with the concept of linear ‘Hysteresis’ as described by the presence of unit roots in unemployment as in most empirical research on this area. Given that this is potentially a narrow definition, we also take into account the existence of structural breaks and nonlinear dynamics in unemployment. Finally, we examine whether CEECs' unemployment presents features of multiple equilibria, that is, if it remains locked into a new level whenever some structural change or sufficiently large shock occurs. Our findings show that, in general, we can reject the unit‐root hypothesis after controlling for structural changes and business‐cycle effects, but we can observe the presence of a high and low unemployment equilibria. The speed of adjustment is faster for CEECs than the EU, although CEECs tend to move more frequently between equilibria.     

Euro,crisis and unemployment: Youth patterns,youth policies?

This paper examines the occurrence of structural breaks in European unemployment associated with major institutional events. We uncover different responses of adult and youth unemployment rates. While adult unemployment is more prone to experience structural breaks, youth unemployment is more sensitive to business cycle oscillations, especially in the recent crisis. This calls for fine tuning policy measures specifically targeted to youth unemployed in bad times. One important implication of our findings is that generic labour market reforms are not effective enough to solve the youth unemployment problem. Educational policies raising average qualifications and helping school-to-work transitions are suitable complementary cures.     

A new test for analysing hysteresis in European unemployment

This article proposes a new unit root test to analyse unemployment hysteresis. The test is able to incorporate cross-sectional dependence, unattended nonlinearity and unknown structural breaks in the time-series data. This study used data on unemployment in five European countries. The findings indicated that conventional unit root tests failed to reject the null hypothesis of hysteresis for all countries. However, the newly proposed unit root test was able to reject the null hypothesis for the Spanish unemployment rate.