Modelling the US, UK and Japanese unemployment rates: Fractional integration and structural breaks

In this paper we use a general procedure for fractional integration and structural breaks at unknown points in time, which allows for different orders of integration and deterministic components in each subsample (see Gil-Alana, 2007). First, we extend this procedure to the non-linear case, and show by means of Monte Carlo experiments that the procedure performs well in a non-linear environment. Second, we apply it to test for a single break in the unemployment rate in the US, the UK and Japan. Our results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsanple). We interpret these findings in terms of different labour market features.

• Type: Journal
• Year: 2008
• Where: CSDA
• Authors: Guglielmo Maria Caporale, Luis A. Gil-Alana
• Keywords: Alternative Unemployment Theories, CSDA 2008, Fractional Integration, Procedure