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HYSTERESIS IN UNEMPLOYMENT EVIDENCE FROM 48 U.S. STATES
Author(s) -
SONG FRANK M.,
YANGRU WU
Publication year - 1997
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1997.tb01906.x
Subject(s) - unit root , unemployment , economics , null hypothesis , hysteresis , econometrics , alternative hypothesis , structural break
Studies using standard unit‐root tests generally cannot reject the hypothesis of a unit root in unemployment rates. These findings have been interpreted as supporting the hysteresis hypothesis. We demonstrate that the failure to reject the null may be due to the low power of the tests. We analyze unemployment rates of 48 U.S. contiguous states using a more powerful panel‐based test which exploits cross‐section restrictions on the constituent series. The critical values are simulated tailored to our sample size. We reject the null decisively, casting some doubt on the hysteresis hypothesis for the United States.