Persistence in U.S. State Unemployment Rates

Romero‐Ávila and Usabiaga (2007) find that many U.S. state unemployment rates are stationary, a result at odds with the traditional view that unemployment rates are path‐dependent and subject to shocks that have permanent effects. They base their results on multivariate unit root tests that provide for two breaks in mean. This note extends the analysis to directly examine whether the series were fractionally integrated. When no allowance is made for breaking means, the results suggest evidence in favor of hysteresis, an outcome that generally applies when one break in mean is considered. Allowing for two breaks demonstrates that the evidence in favor of the natural rate and the hysteresis hypotheses is temporally sensitive.     

Unit Root Tests,Persistence, and the Unemployment Rate of the U.S. States

In this paper, we investigate the existence of infrequent shocks and the degree of persistence of U.S. state unemployment over the period 1976-2004. We first apply individual Lagrange multiplier (LM) unit root tests and fail to reject the hysteresis hypothesis in forty states. When two changes in level are incorporated, we again fail to reject the hysteresis hypothesis in forty states. Since individual unit root tests normally lack power, we employ the recently developed panel LM unit root tests with up to two changes in level. Only in this case are we able to reject the joint unit root hypothesis in favor of regime stationarity. Computation of half-lives through impulse-response functions indicates the high degree of persistence of U.S. state unemployment. These results contrast with the common belief among scholars that U.S. state unemployment is closer to the natural rate paradigm than to the hysteresis paradigm.     

Persistence in U.S. State Unemployment Rates: Errata and Extensions

Using panel unit root tests allowing for breaking deterministics, 2007 found that many U.S. state unemployment rates were stationary, a result at odds with the traditional view that unemployment rates are path‐dependent and subject to shocks that have permanent effects. 2009 extended the analysis to directly examine whether the series were fractionally integrated and reported that models with two breaks‐in‐mean do suggest many state unemployment rates were mean‐reverting. The purpose of this note is to correct an error contained in 2009 , which when modified, indicates that state unemployment rates were non‐stationary processes well‐characterized by hysteresis.     

The Short-Run Relationship Between Sectoral Shifts and U.S. Labor Market Fluctuations

Monthly data for the aggregate U.S. economy are used to assess competing hypotheses concerning the relationship between sectoral employment shifts and fluctuations in the unemployment rate. It is shown that sectoral shifts are caused by major work stoppages, aggregate fluctuations unrelated to permanent sectoral shifts, a reallocation-timing effect, and allocative shocks at the sectoral level. Larger employment shifts are associated with higher unemployment during slow growth periods and lower unemployment during above-average growth periods. Models are presented which demonstrate that both aggregate and allocative shocks are causes of cyclical increases in unemployment.     

Exchange Rates,Domestic Prices,and Central Bank Actions: Recent U.S. Experience

Central banks that are primarily concerned with the behavior of prices will use monetary policy to try to insulate prices from exchange rate changes. Prices then appear unresponsive to changes in the exchange rate. The observed relationships between prices and the exchange rate will reflect central bank actions instead of the underlying relationship between exchange rates and prices. This paper explicitly recognizes the role that policy plays in determining the observable relationships between exchange rates and prices, and in so doing, it illustrates how the underlying relationships can be unraveled. Using three different empirical approaches, we examine the recent experience of the United States. We find that the prices of various nondurable goods, and even of some services, respond modestly to the exchange rate, and we find that the responses emerge most clearly when the role of monetary policy is explicitly considered. These findings are consistent with the hypothesis that the Federal Reserve acts to mitigate the effects of exchange rate fluctuations on domestic prices.     

VICIOUS AND VIRTUOUS CIRCLES – THE POLITICAL ECONOMY OF UNEMPLOYMENT

We develop an empirical non-linear model of equilibrium unemployment and test its policy implications for a number of OECD countries. The model here sees the natural rate and the associated equilibrium path of unemployment as endogenous, pushed by the interaction of shocks and the institutional structure of the economy; the channel through which these two forces feed on each other is a political economy process whereby voters with "limited information" on the natural rate of unemployment react to shocks by demanding more or less social protection. The reduced form results from a dozen OECD economies give support to the model prediction of a pattern of unemployment behaviour in which unemployment moves between high and low equilibria in response to shocks and the model specification is superior in forecasting performance out of sample to alternative models of "generalised hysteresis".     

Unemployment hysteresis in the East Asia‐Pacific region: new evidence from MADF and SURADF tests

This study re‐examined the unemployment hysteresis hypothesis in the context of twelve countries in the East Asia‐Pacific region, namely Australia, China, Guam, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, and Thailand. It employed the multivariate augmented Dickey–Fuller test and the seemingly unrelated regression augmented Dickey–Fuller test for this purpose. The empirical results confirmed the presence of unemployment hysteresis in these countries, except in South Korea and New Zealand. The findings indicated that the equilibrium rate of unemployment in the East Asia‐Pacific region tended to be path dependent and that cyclical fluctuations in these countries' economies could have permanent effects on the level of unemployment. These results provide additional empirical proof of the validity of the hysteresis hypothesis.     

An empirical analysis of the unit labor cost-product price relation in the U.S. economy

This article tests for cointegration between unit labor costs and the level of product prices in four sectors of the U.S. economy: the aggregate business sector, the nonfinancial corporate sector, durable manufacturing, and nondurable manufacturing. A finding of cointegration for most specifications supports the existence of long-run labor market equilibrium for producers and suggests estimation of error-correction models to examine the dynamic relationships. In every sector except nondurable manufacturing, error-correction model estimates indicate there is a mutual feedback relationship between unit labor costs and prices. Controlling for deviations from full employment, oil price shocks, and the Nixon wage and price controls, the results also provide evidence of significant nominal wage indexation in U.S. labor markets. Throughout the economy there appears to exist both effective neoclassical wage and price adjustment mechanisms to maintain labor market equilibrium and short-run rigidities which may contribute to deviations from full employment outcomes.     

Hysteresis in unemployment in the Netherlands

Summary The Dutch labour market situation in the eighties can be characterized by the hysteresis phenomenon, i. e. a rising natural rate of unemployment as a result of the rise of actual unemployment in the past. It appears that the hysteresis phenomenon is more important in The Netherlands than in France and the United States and as relevant as in Germany and the United Kingdom. Because of the steep rise of unemployment in The Netherlands the natural rate of unemployment may have risen more than in Other European countries. As a consequence, the wage depressing effect of the current high unemployment rate has diminished rapidly.I thank J.C. Siebrand, D.P. Broer and C.B. Mulder for helpful comments on an earlier version of this paper.     

The impact of sectoral shifts in investment on unemployment in U.S. labor markets

Capital stock data for the U.S. economy are used to develop a measure of sectoral shifts in productive resources. Within the context of the creative destruction process, this measure provides a direct indicator of sectoral shifts in resource demands independent of aggregate fluctuations. Years with greater reallocations of capital have higher unemployment, a result consistent with the traditional sectoral shifts hypothesis. However, fluctuations in unemployment appear to be more strongly influenced by aggregate rather than sectoral shocks. Significant variation exists across demographic groups in the responsiveness of unemployment to aggregate fluctuations and sectoral shifts. The adverse impact of sectoral shifts is greater for males and members of the nonwhite labor force.     

Estimating Key Economic Variables: The Policy Implications

The current monetary policy debate has focused on current estimates and the future path of the natural rate of unemployment and the equilibrium interest rate. Estimates of the natural rate of unemployment should vary over time with changes in demographics and improvements in human capital. However, these changes should be gradual. This paper shows that the estimates of the natural rate of unemployment by Federal Reserve officials and private-sector economists seem to move pro-cyclically, potentially showing too much weight given to short-term fluctuations in economic variables. As with the natural rate, there are good reasons to expect the equilibrium interest rate to change over time. In fact, the level may actually be more responsive to current economic data, reflecting changes in aggregate savings and investment. Yet, we see that equilibrium interest rate estimates by both Federal Reserve officials and private-sector economists have declined quite dramatically over the past five years. A potential concern raised in this paper is that estimates of these critical economic variables for policy determination appear to be overly sensitive to high frequency economic data.     

中美贸易对美国就业影响研究——基于美国制造业面板数据的分析

本文通过建立国际贸易对就业影响的理论模型,利用美国制造业面板数据分析中美贸易对美国就业的影响问题。实证结论表明,美国进口中国制成品对美国就业没有显著影响,也不是美国失业的Granger原因;美国制成品出口对增加美国就业虽有显著影响,但作用不大;影响美国国内就业的主要因素是实际工资、企业发展状况等实际因素。这些结论充分说明,美国的失业问题不是由美国进口中国制成品引起的,美国减少中国制成品进口也解决不了美国的失业问题。     

我国是否存在失业回滞效应？——基于第一、二代面板单位根检验的实证分析

就业是民生之本,然而自上世纪九十年代以来我国失业率逐年攀升,日益严峻的失业问题已引起政策当局和学术界的广泛关注与高度重视。有鉴于此,本文在第一代面板单位根检验的基础上,结合最新发展的第二代面板单位根检验方法,对我国是否存在失业回滞效应展开深入研究,进而为我国促进就业的政策选择提供重要的参考依据。研究结果表明,我国存在着显著的失业回滞效应,这就使得经济周期波动等外部冲击对我国失业产生永久性影响,从而在很大程度上造就了我国失业率逐年攀升、高居不下的局面,现阶段政府实施干预性的宏观调控政策显得十分必要。在此基础上,本文对降低乃至消除失业回滞效应、完善我国治理失业的宏观调控机制提出了若干政策建议。     

Unemployment in Latin America and the Caribbean

This study constructs a new data set on unemployment rates in Latin America and the Caribbean and then explores the determinants of unemployment. We compare different countries, finding that unemployment is influenced by the size of the rural population and that the effects of government regulations are generally weak. We also examine large, persistent increases in unemployment over time, finding that they are caused by contractions in aggregate demand. These demand contractions result from either disinflationary monetary policy or the defense of an exchange-rate peg in the face of capital flight. Our evidence supports hysteresis theories in which short-run changes in unemployment influence the natural rate.     

Nonequilibrium prices and economic market flexibility

This paper describes an approach to estimating an equilibrium wage and an equilibrium rate of return with subsequent identification of their distortions when actual values of macrofactor prices are formed. The relation of the process of distortion of equilibrium prices to Walras’ Law is demonstrated. The concept of nonequilibrium prices is generalized from three markets: labor, capital, and institutional. The notion of economic market flexibility is introduced and its role in achieving economic equilibrium is ascertained. A technique for determining the “natural” rate of unemployment is proposed. All the methods are validated using the United States, Britain, and Russia as examples.     

Factors That Account for the Large Variations in U.S. Export Prices

Using product level U.S. export data from 1989 to 2001, there is evidence that U.S. exporters price discriminate across markets. Variation in the quality of the products is one reason for the observed price differentiation. U.S. exporters also price discriminate based on transaction costs. Finally, U.S. exporters practice pricing-to-market and this pricing strategy is another source of the variations in U.S. export prices. Some of these conclusions though are weakened when export prices toward the center of the price distribution are considered. JEL no. F14     

The antebellum U.S. iron industry: Domestic production and foreign competition

This paper presents new annual estimates of U.S. production of pig iron and imports of pig iron products dating back to 1827. These estimates are used to assess the vulnerability of the antebellum iron industry to foreign competition and the role of the tariff in fostering the industry’s early development. Domestic pig iron production is found to be highly sensitive to changes in import prices. Although import price fluctuations had a much greater impact on U.S. production than changes in import duties, our estimates suggest that the tariff permitted domestic output to be about 30-40 percent larger than it would have been without protection.     

Do conservative governments make a difference in monetary policy? A study of the U.S. and the U.K.

This paper offers an empirical test of the Simon's proposition: Do conservative governments make a difference in monetary policy? Using quarterly data on the inflation rate and the GDP gap, the authors test the hypothesis during the tenure of two regimes: conservatives and non-conservatives, and for two countries, the U.S. and the U.K. Under the assumption that the monetary authority followed a Taylor rule, they evaluate monetary policies pursued by alternative regimes in the two countries. Alternatively, they assume that the monetary authority adjusts money growth in response to deviations of inflation and GDP from their target levels. The estimation results were mixed. The Simon's hypothesis was supported in the U.K. during the Thatcher regime, but not in the U.S. during the Reagan's tenure. The findings for the U.S. in contrast to those obtained for the U.K. indirectly validate the Simon's contention that monetary policy in the U.S. is subject to manipulation by interest groups“Perhaps the ultimate test of the conservative status of government is its willingness to pursue stable monetary policy.”William E. Simon, 1980, p. 8     

Real exchange rates and unit root tests

Real Exchange Rates and Unit Root Tests. — This paper examines monthly OECD exchange rate data (1979–1997) using univariate and panel data unit root tests. Some of these tests support the hypothesis of a unit root. But tests of cointegration reveal the existence of weak purchasing power parity relationships between bilateral nominal exchange rates and relative prices. We suggest that researchers need not conduct unit root tests on real exchange rate data when a modified version of PPP is used; or if there is a long enough time series. Given the definition of real exchange rates, the indicator should be stationary and should have intrinsic mean reverting behaviour.     

Energy Price Shocks and Economic Activity in Texas Cities

It is not known how exogenous shocks in oil price impact city economies. This study examines unemployment rates in Texas cities in relation to oil price movements during the period 1995–2008. We find that unemployment in the bigger cities like Austin, Dallas, and Houston, is not related to oil prices in a significant way when compared to unemployment in the smaller border cites, especially in Laredo. Although the Texas economy has become more diversified and less vulnerable to oil price movements in the last two decades, smaller border cities still experience the effect of oil price shocks, possibly through the neighboring economy of Mexico. Our data indicate significant variations in the unemployment rate in Laredo due to movements in oil price. We observe improvements in the unemployment rates in Laredo as oil price increases.