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Fractional Integration and the Dynamics of UK Unemployment*
Author(s) -
GilAlana Luis A.,
Brian Henry S. G.
Publication year - 2003
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/1468-0084.t01-1-00047
Subject(s) - unemployment , economics , econometrics , mean reversion , yield (engineering) , set (abstract data type) , long memory , nairu , persistence (discontinuity) , unemployment rate , macroeconomics , volatility (finance) , computer science , programming language , materials science , geotechnical engineering , metallurgy , engineering
Abstract This article is concerned with estimating the dynamic behaviour of UK unemployment using fractional integration methods. The question it considers is whether an unemployment model using a relatively small set of determinants of unemployment is consistent with the persistence which estimates an integrated model yield, or the much long‐lasting estimates obtained from fractional integration. Our empirical tests favour the latter version. The results show that when accounting for UK unemployment in terms of lagged values of the real oil price and the real interest rate, unemployment appears fractionally integrated. This finding means that although unemployment is mean reverting, once it is shocked it may take a very long time to recover, and our estimates of the response times are considerably in excess of those previously reported in the literature.