DP 140 exof 200x294

No. 140. IS THERE AN ASYMMETRIC RESPONSE IN UNEMPLOYMENT RATE TO CHANGES IN OUTPUT? A HIDDEN COINTEGRATION APPROACH

A. Koutroulis, Y. Panagopoulos, E. Tsouma. 2015.

 

DP 140 exof 200x294In this paper we investigate the relationship between unemployment and output in selected countries -Australia, Canada, Germany, Greece, Japan, and the Unites States- for a prolonged period of time. We use quarterly data for unemployment and output, spanning the time period from the 1960s (with the exception of Greece) to 2014. Our aim is to investigate whether unemployment is characterized by an asymmetric behavior with respect to changes in output. In order to do that, we employ the Granger-Yoon 2002 hidden cointegration approach which ex ante decomposes the aggregate output and unemployment variables in positive and negative values. Assessing the potential existence of asymmetry in the response of unemployment to changes in output is essential for the evolution of unemployment following the rebound in output after crises and, hence, the potential need for the implementation of active labour market policies. Our results indicate that in four out of six of the investigated countries –including Greece– the unemployment rate responds asymmetrically to changes in output.

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