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Persistence and stochastic convergence of euro area unemployment rates: evidence from LM and RALS-LM unit root tests with breaks

Irena Raguž Krištić orcid.org/0000-0002-1422-9282 ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia
Lucija Rogić Dumančić orcid.org/0000-0002-7963-4166 ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia
Vladimir Arčabić orcid.org/0000-0003-4173-8637 ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia

Abstract

The goal of this paper is to determine if the euro area (EUA) accession and membership had a significant impact on the unemployment rates of the EUA countries. The hypothesis of the paper is that there is unemployment hysteresis and EUA accession thus contributed to the economic integration and convergence of the unemployment rates in the EUA. The paper employs LM and RALS-LM unit root tests with two breaks to analyze the persistence, test the stochastic convergence and locate structural break(s) in the seasonally adjusted quarterly unemployment rates, covering the period from 1995q1 to 2016q2. The most interesting results are that: (i) there are EUA-related down breaks in unemployment rates with hysteresis, (ii) EUA-related breaks are followed by the periods of convergence to the EUA11 average, (iii) crisis-related breaks are followed by the periods of divergence and (iv) the EUA membership is not a sufficient condition for stochastic convergence.

Keywords

Unemployment; Euro area; Hysteresis; Stochastic convergence; Unit root; Structural breaks

Hrčak ID:

186869

URI

https://hrcak.srce.hr/186869

Publication date:

28.9.2017.

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