() and Timo Teräsvirta
Joakim Skalin: Ministry of Finance, Department of Economics, Postal: P.O. SE-103 33 Stockholm, Sweden
Timo Teräsvirta: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden
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.
55 pages, First version: September 28, 1998. Revised: July 1999. Earlier revisions: October 5, 1998, November 5, 1998, November 19, 1998, July 8, 1999, July 8, 1999, July 7, 1999.
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