Is It the Natural Rate Hypothesis or the Hysteresis Hypothesis for Unemployment Rates in Newly Industrialized Economies?

Dieu Nsenga; Mirada Nach; Hlalefang Khobai; Clement Moyo; Andrew Phiri

doi:10.2478/cer-2019-0031

Authors

Dieu Nsenga Nelson Mandela University, Department of Economics, Faculty of Business and Economic Studies, Port Elisabeth, South Africa
Mirada Nach Nelson Mandela University, Department of Economics, Faculty of Business and Economic Studies, Port Elisabeth, South Africa
Hlalefang Khobai Ph.D., Senior lecturer, North West University, Department of Economics Faculty of Economic and Management Sciences, Port Elisabeth, South Africa
Clement Moyo Ph.D., post‑doctorate researcher, Nelson Mandela University, Department of Economics, Faculty of Business and Economic Studies, Port Elisabeth, South Africa
Andrew Phiri Ph.D., Senior lecturer, Nelson Mandela University, Department of Economics, Faculty of Business and Economic Studies, Port Elisabeth, South Africa

DOI:

https://doi.org/10.2478/cer-2019-0031

Keywords:

natural rate hypothesis, hysteresis hypothesis, unemployment, unit root tests, Fourier function approximation, newly industrialized economies

Abstract

The focus of our study is on determining whether unemployment rates in 8 New Industrialized Economies conform to the natural rate hypothesis or the hysteresis hypothesis. To this end, we employ a variety of unit of unit root testing procedures to quarterly data collected between 2002:q1 and 2017:q1. Summarizing of our findings, conventional unit root tests which account neither for asymmetries nor structural breaks produce the most inconclusive results. On the other hand, tests which incorporate structural breaks while ignoring asymmetries tends to favour the natural rate hypothesis for our panel of countries. However, simultaneously accounting for asymmetries and unobserved structural breaks seemingly produces the most robust findings and confirms hysteresis in all unemployment rates except for Asian economies/countries of Thailand and the Philippines.

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