Unit root tests and persistence of unemployment: Spain vs. the United States

Abstract

In this article, we investigate the existence of infrequent shocks and the degree of persistence of unemployment in the US and Spain over the period 1976–2004. We first apply the minimum Lagrange Multiplier unit root test with up to two endogenous changes in level. The evidence gives support to the hysteresis hypothesis for Spain and to regime-wise stationarity for the US. The computation of median unbiased estimates of half-lives directly from the impulse-response function indicates a much higher degree of persistence of unemployment in Spain than in the US. Our results thus give an indication that aggregate demand policies may have different effects in these two countries.