This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory Our approach, based on the tests of Robinson (1994), introduces fractional integration and nonlinearities simultaneously into the same framework (unlike earlier studies employing a sequential procedure), using a Lagrange Multiplier procedure with a standard limit distribution The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some non-linear functions of the labour demand variables (real oil prices and real interest rates) We also find evidence of a long-memory component Our results are consistent with a hysteresis model with path dependency rather than a NAIRU model with an underlying unemployment equilibrium rate, hence giving support to more activist stabilisation policies However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policymaking

/pdf/non-linearities-and-fractional-integration-in-the-us-3z3xyli0s0.pdf

Business economics and statistics

Non-Linearities and Fractional Integration in the US Unemployment Rate

This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework, using a Lagrange multiplier procedure with a standard null‐limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some nonlinear functions of labour‐demand variables such as real oil prices and real interest rates. We also find evidence of a long‐memory component. Our results are consistent with a hysteresis model with path dependency rather than a non‐accelerating inflation rate of unemployment (NAIRU) model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilization policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policy‐making.

/pdf/nonlinearities-and-fractional-integration-in-the-us-3n5kjtw7nd.pdf

Nonlinearities and Fractional Integration in the US Unemployment Rate

Weekly and daily US dollar and German mark returns to several currencies are investigated for common ARCH factors, using the Engle and Kozicki common features methodology. Daily returns are too noisy to reveal any common ARCH factors, and no evidence of such factors is found in either daily or weekly German mark returns. There is strong evidence of a common ARCH factor in sterling and yen US dollar weekly returns, and a possible explanation of this in terms of dollar dominated speculative investment is investigated. However, there is no evidence of common ARCH in German mark and guilder dollar returns, which is surprising given the similarity of their GARCH(1,1) volatilities. This could be due to the lack of dynamic structure in the tests proposed by R. F. Engle and S. Kozicki (1993) Testing for common features "Journal of Business Economics and Statistics", 11(4), 369–95

http://janroman.dhis.org/finance/Volatility%20Models/CommonVolatility.pdf

Business economics and statistics

Citations

Non-Linearities and Fractional Integration in the US Unemployment Rate

Nonlinearities and Fractional Integration in the US Unemployment Rate

Common volatility in the foreign exchange market

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