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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 262:
Modelling asymmetries and moving equilibria in unemployment rates

Joakim Skalin () and Timo Teräsvirta ()

Abstract: The paper discusses a simple univariate nonlinear parametric time-series model for unemployment rates, focusing on the asymmetry observed in many OECD unemployment rate series. The model is based on a standard logistic smooth transition autoregressive (LSTAR) model for the first difference of unemployment, but it also includes a lagged level term. This model allows for asymmetric behaviour by permitting 'local' nonstationarity in a globally stable model. Linearity tests are performed for a number of quarterly, seasonally unadjusted, unemployment series from OECD countries, and linearity is rejected for a number of them. For a number of series, nonlinearity found by testing can be modelled satisfactorily by use of our smooth transition autoregressive model. The properties of the estimated models, including persistence of the shocks according to them, are illustrated in various ways and discussed. Possible existence of moving equilibria in series not showing asymmetry is investigated and modelled with another STAR model.

Keywords: Persistence; nonlinearity; smooth transition regression; time series model; linearity test; (follow links to similar papers)

JEL-Codes: C22; E24; E32; (follow links to similar papers)

55 pages, September 28, 1998, Revised July 8, 1999

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This paper is published as:
Skalin, Joakim and Timo Teräsvirta, (2002), 'Modeling asymmetries and moving equilibria in unemployment rates', Macroeconomic Dynamics, Vol. 6, pages 202-241

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