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.     

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.     

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。     

Decline in the persistence of real exchange rates,but not sufficient for purchasing power parity

The paper investigates the possibility of decline in the persistence of real exchange rates, or deviations from PPP. To this end, we test the null hypothesis of no decline in the PPP deviation persistence between two subsamples using a fractional integration framework. The test rejects the null at the 10% significance level for nine out of 17 countries, providing solid evidence for a decline in the persistence of real exchange rates. However, the decline is not sufficient for PPP, meaning we fail to reject the unit root hypothesis even in the latter period for all 17 countries. In addition, our rolling-window estimates show that the real exchange rate of many countries have experienced a sharp drop in their persistence once we use samples starting from the mid-1980s. Finally, we examine the relationship between the dynamics of PPP deviation persistence and several economic variables and confirm that the speed of convergence of PPP deviations is highly related to economic/financial integration and world economic stabilization.     

TESTING FOR STATIONARITY OF INFLATION RATES WITH COVARIATES

This paper distinguishes between the stationarity and nonstationarity of inflation in 18 OECD countries through several unit root tests with covariates. These covariate tests are more powerful than the conventional ones through correlated covariates. Both unit root and stationarity null hypotheses are tested in this study. Our empirical results indicate that the efficient univariate unit root tests fail to reject the unit‐root hypothesis for 15 countries, whereas the covariate tests provide strong evidence in support of mean reversion in inflation for almost all countries. Overall, the findings unveil new evidence in favor of stationarity in international inflation. Policy implications on the empirical results are provided as well.     

The convergence dynamics of economic freedom across U.S. states

This study tests for convergence in economic freedom across the 50 U.S. states from 1981 to 2019. In particular, we test for stochastic convergence in overall economic freedom using unit root tests that account for structural breaks and bounded processes, two sources of parameter instability. We find limited evidence of stochastic convergence. Further analysis of relative (club) convergence and weak σ-convergence rejects the presence of overall convergence in the panel of the U.S. states, but the emergence of two convergence clubs with respect to state-level economic freedom. The logit analysis of the determinants of the convergence clubs reveals that more prosperous states and states with a higher initial level of economic freedom have a higher probability of being in the club with more economic freedom. However, more racially diverse states have a lower probability of being in the club with more economic freedom.     

Asymmetric behavior of unemployment rates: Evidence from the quantile covariate unit root test

Mixed results for unemployment dynamics are reported in many studies using linear or non-linear unit root tests. A possible explanation is that the literature focuses on the average behavior of unemployment and assumes that the speed of adjustment towards its long-run equilibrium is constant, regardless of the magnitudes and signs of shocks. This paper seeks to re-examine the dynamics of the unemployment rates in terms of shocks for 12 OECD countries. A newly developed quantile unit root test by Galvao (2009) is applied to show potential asymmetric responses of unemployment to shocks over various quantiles, depending on the size and sign of the shocks that hit the unemployment rate. Our results suggest that generally, the unemployment rates are not only stationary but also exhibit obvious asymmetric behavior, in the sense that in the lower quantiles, negative shocks with large absolute value tend to induce faster speed of adjustment towards the long-run equilibrium, while in the upper quantiles, large positive shocks do not, and hysteresis exists. These findings can explain why unemployment rates display the behavior of fast rises and slow falls.     

Are Real GDP Levels Trend,Difference, or Regime-Wise Trend Stationary? Evidence from Panel Data Tests Incorporating Structural Change

The unit root hypothesis for international real GDP and real GDP per capita has been the subject of extensive investigation. Using panel methods that incorporate structural change, we reject the unit root null in favor of the alternative of trend stationarity, with one or two changes in the slope for two panels with postwar data and one or two changes in both the slope and the intercept for a panel with long-horizon data. We conclude that real GDP levels are better characterized as regime-wise trend stationary than as either trend stationary without structural change or difference stationary with unit roots.     

U.S. States,the Medicaid Program,and Tax Smoothing

This paper tests the tax smoothing theory by focusing on its implication that a change in permanent government spending should result in an equal sized change in the tax rate. The effect of Medicaid, a state administered, federal and state funded medical insurance program for the poor, on state tax rates is investigated. The Medicaid program provides a natural experiment for this test as states are required to cover certain groups in order to receive federal matching money. Additionally, during the 1980s, a series of federal mandates greatly increased state Medicaid expenditures. Two stage least squares is used on a panel of U.S. states (1978-1994) to test whether changes in permanent state Medicaid expenditures resulted in equal sized tax rate changes. Tax smoothing as a positive theory of state government behavior is rejected. Additionally, it is found that this rejection cannot be attributed to the stringency of balanced budget rules.     

Are G7 per capita real GDP levels non-stationary, 1870–2001?

In this paper we examine whether or not G7 per capita income can be classified as a stationary process using data for over a century. The unit root null hypothesis is tested using the recently developed Lagrange multiplier test which allows for at most two structural breaks. We are able to reject the unit root null hypothesis for all the countries at the 5 percent level or better, except for Italy and Germany.     

What Lies beneath? A Sub-National Look at Okun’s Law in the United States

We find that Okun’s Law holds quite well for most U.S. states but the Okun coefficient—the responsiveness of unemployment to output—varies substantially across states. We are able to explain a significant part of this cross-state heterogeneity on the basis of the state’s industrial structure. Our results have implications for the design of state and federal policies and may also be able to explain why Okun’s Law at the national level has remained quite stable over time despite an enormous shift in the structure of the U.S. economy from manufacturing to services.     

Structural changes and unit roots in Japan’s macroeconomic time series: is real business cycle theory supported?

This paper aims to detect temporal and continuous structural changes in the major Japanese macroeconomic time series by means of Yamamoto’s (1996) augmented step-wise Chow test, and to clarify the stationarity and/or non-stationarity of these series by conducting unit root tests. It also aims to verify empirically that a model assuming no structural change is not likely to reject a null hypothesis even when a true model contains a structural change. Structural changes are assumed to contain not only changes in the parameters of the drift term and the time trend, but also changes in other parameters. The results favor the existence of real business cycles.     

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。     

Pollution mitigation,unemployment rate and wage inequality in the presence of agricultural pollution

This paper established a small open general equilibrium model to investigate the effects of the changes of consumers' unit private mitigation expenditure on the unemployment rate and the urban-rural wage inequality etc.. We found that (1) in the capital specific case, the increase of unit private mitigation expenditure will not only increase the urban unemployment rate but also expend the urban-rural wage inequality; (2) in the capital movable case, the conclusions are exactly opposite to that of the capital specific case. And under certain conditions, the increase of unit private mitigation expenditure may improve national income. According to the parameter calibration and numerical simulation results of the relevant macroeconomic data of China in 2017, we also found that (3) the effects of the changes of unit private mitigation expenditure on the urban unemployment rate is greater than that of the urban-rural wage inequality; (4) the influence degree of the changes of unit private mitigation expenditure on the unemployment rate in the capital movable case is greater than that of the capital specific case, but the influence degree of the change of unit private mitigation expenditure on the urban-rural wage inequality in the capital movable case is smaller than that of the capital specific case.     

Domestic-Foreign Interest Rate Differentials: Near Unit Roots and Symmetric Threshold Models

This paper investigates the near unit root behavior of interest rate differentials across countries using a symmetric Band-TAR model that allows for a heteroscedastic error process. We find that the time series properties of monthly short-term interest differentials over the period 1974–2005 between the United States and Canada, France, Germany, Japan, and the United Kingdom can be characterized by a symmetric Band-TAR process, which can explain its (near) unit root behavior reported in the extant literature. Results significantly reject a linear model in favor of the alternative hypothesis of a two-regime symmetric threshold model that exhibits significantly greater persistence within the threshold bands than when outside the threshold bands.     

Mean Reversion in the Real Interest Rate and the Effects of Calculating Expected Inflation

We investigate the measured persistence in the real interest rate using a variety of methods to annualize inflation and calculate the real rate. Results from a battery of conventional unit root tests yield conflicting conclusions for the various real rates, adding to an existing confusion regarding mean reversion. Both long memory and exponential smooth‐transition autoregressive models (ESTAR) nonlinearity are considered as possible alternatives, and in contrast to the unit root test results, we find highly robust evidence against the unit root null. Based on the empirical results, Monte Carlo analysis is performed to study the disparate results obtained using fractional integration and unit root tests.     

IS THERE AN ASYMMETRIC BEHAVIOUR IN AFRICAN INFLATION? A NON‐LINEAR APPROACH

In this paper we test the inflation persistence hypothesis as well as model the long‐run behaviour of inflation rates in a pool of African countries using a non‐linear framework. In order to do so, we rely on unit root tests applied to non‐linear models and fractional integration. The results show that the hypothesis of inflation persistence does not hold empirically for most of the countries. In addition, the estimated models (logistic smooth transition autoregressions) are stable in the sense that the variable tends to remain in the regime (low inflation or high inflation) once reached, and changes between regimes are only achieved after a shock. The results also indicate that the effects of the shocks on inflation tend to die out; exogenous factors, i.e. supply shocks and inertia may be causing this outcome, as they play a substantial role in the determination of the inflation rates for our selected African countries.     

TESTING FOR FRACTIONAL INTEGRATION IN SOUTHERN AFRICAN DEVELOPMENT COMMUNITY REAL EXCHANGE RATES

This paper utilises “a class test for fractional integration” associated with the seminal contribution of Hinich and Chong to appraise the possibility that Southern African Development Community (SADC) real exchange rates can be treated as long memory processes. The justification for considering fractional integration is that the general failure to reject the unit‐root hypothesis in real exchange rates is caused by the restrictiveness of standard unit‐root tests regarding admissible low‐frequency dynamic behaviour. The paper presents evidence that, except for South Africa, none of the SADC real exchange rates are fractionally integrated. However, the results are found to be sensitive to the size of the sample.