Skip to main content Accessibility help
×
×
Home

NONLINEARITY IN THE CANADIAN AND U.S. LABOR MARKETS: UNIVARIATE AND MULTIVARIATE EVIDENCE FROM A BATTERY OF TESTS

  • THEODORE PANAGIOTIDIS (a1) and GIANLUIGI PELLONI (a2)
Abstract

The nonlinearity of macroeconomic processes is becoming an increasingly important issue at both the theoretical and empirical levels. This trend holds for labor market variables as well. The reallocation theory of unemployment relies on nonlinearities. At the same time there is mounting empirical evidence of business cycles asymmetries. Thus the assumption of linearity/nonlinearity becomes crucial for the corroboration of labor market theories. This paper turns the microscope on the assumption of linearity and investigates the presence of asymmetries in aggregate and disaggregate labor market variables. The assumption of linearity is tested using five statistical tests for U.S. and Canadian unemployment rates and growth rates of the employment sectoral shares of construction, finance, manufacturing, and trade. An AR(p) model was used to remove any linear structure from the series. Evidence of nonlinearity is found for the sectoral shares with all five statistical tests in the U.S. case but not at the aggregate level. The results for Canada are not clear-cut. Evidence of unspecified nonlinearity is found in the unemployment rate and in the sectoral shares. Overall, important asymmetries are found in disaggregated labor market variables in the univariate setting. The linearity hypothesis was also examined in a multivariate framework. Evidence is provided that important asymmetries exist and a linear VAR cannot capture the dynamics of employment reallocation.

Copyright
Corresponding author
Address correspondence to: Dr. Theodore Panagiotidis, Department of Economics, Loughborough University, Loughborough LE11 3TU, UK; e-mail: t.panagiotidis@lboro.ac.uk.
References
Hide All
Alogoskoufis G.S. and A. Manning 1988 On the persistence of unemployment. Economic Policy 7, 427469.
Barnet W.A., A.R. Gallant, M.J. Hinich, J.A. Jungeilges, D.T. Caplan, and M.J. Jensen 1997 A single-blind controlled competition amongst tests for nonlinearity and chaos. Journal of Econometrics 82, 157192.
Barnett W.A. and A. Serletis, 2000 Martingales, nonlinearity, and chaos. Journal of Economic Dynamics and Control 24, 703724.
Blanchard O.J. and L.H. Summers 1986 Hysteresis and the European unemployment problem. In S. Fisher (ed.), NBER Macroeconomics Annual, pp. 1578. Cambridge, MA: MIT Press.
Bollerslev T. 1986 Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics 31, 307327.
Breitung J. 2002 Nonparametric tests for unit roots and cointegration. Journal of Econometrics 108, 343363.
Brock W.A., W. Dechert, J. Scheinkman, and B. LeBaron 1996 A test for independence based on the correlation dimension. Econometrics Reviews 15, 197235.
Brock W.A., D.A. Hsieh, and B. LeBaron 1991 Nonlinear Dynamics, Chaos, and Instability. Cambridge, MA: MIT Press.
Brock W. and C. Sayers 1988 Is the business cycle characterised by deterministic chaos? Journal of Monetary Economics 22, 7190.
Brooks C. and M.J. Hinich 1998 Episodic nonstationarity in exchange rates. Applied Economics Letters 5, 719722.
Brooks C., M.J. Hinich, and R. Molyneux 2000 Episodic nonlinear event detection: Political epochs in exchange rates. In D. Richards (ed.), Political Complexity, pp. 8398. Ann Arbor, MI: University of Michigan Press.
Campbell J.R. and K.N. Kuttner 1996 Macroeconomic effects of employment reallocation. Carnegie-Rochester Conference Series on Public Policy 44, 87116.
Clements M.P. and H.-M. Krolzig 1998 A comparison of the forecast performance of Markov-switching and threshold autoregressive models of US GNP. Econometrics Journal 1, C47C75.
Davis S.J. and J. Haltiwanger 1999 On the driving forces behind cyclical movements in employment and job reallocation. American Economic Review 89, 12341258.
Engle R.F. 1982 Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50, 9871007.
Frank M., C. Sayers, and T. Stengos 1993 Evidence concerning non-linear structure in Canadian provincial unemployment rates. Structural Change and Economic Dynamics 4 (2), 333343.
Frank M. and T. Stengos 1988 Some evidence concerning macroeconomic chaos. Journal of Monetary Economics 22, 423438.
Gallipoli G. and G. Pelloni 2001 Macroeconomic Effects of Employment Reallocation Shocks: A Review and an Appraisal from an Applied Perspective. Working paper 15, School of Economics, Free University of Bolzano, Italy.
Hinich M.J. 1982 Testing for gaussianity and linearity of stationary time series. Journal of Time Series Analysis 3, 169176.
Hinich M.J. 1996 Testing for dependence in the input to a linear time series. Journal of Nonparametric Statistics 6, 205221.
Hinich M.J. and D.M. Patterson 1995 Detecting Epochs of Transient Dependence in White Noise. Unpublished manuscript, University of Texas at Austin.
Hinich M.J. and P. Rothman 1998 Frequency-domain test of time reversibility. Macroeconomic Dynamics 2, 7288.
Judge G.W. Griffiths, C. Hill, H.L. Lutkepohl, and T.C. Lee 1985 The Theory and Practice of Econometrics. New York: Wiley.
Keenan D.M. 1985 A Tukey nonadditivity-type test for time series nonlinearity. Biometrica 72, 3944.
Koop G. and S.M. Potter 1999 Dynamic asymmetries in US unemployment. Journal of Business and Economic Statistics 17, 298313.
Koop G. and S.M. Potter 2000 Nonlinearity, structural breaks, or outliers in economic time series? In W.A. Barnett, D.F. Hendry, S. Hylleberg, T. Terasvirta, D. Tjosttheim, and A. Wurtz (eds.), Nonlinear Econometric Modelling in Time Series, pp. 6178. Cambridge: Cambridge University Press.
MacKinnon J.G. 1996 Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics 11, 601618.
McLeod A.I. and W.K. Li. 1983 Diagnostic checking ARMA time series models using squared-residual autocorrelations. Journal of Time Series Analysis 4, 269273.
Nickell S. 1990 Unemployment: A survey, The Economic Journal 100, 391439.
Panagiotidis T. and G. Pelloni 2003 Testing for non-linearity in the labour markets: The case of Germany and the UK. Journal of Policy Modeling 25, 275286.
Panagiotidis T., G. Pelloni, and W. Polasek 2003 Macroeconomic effects of reallocation shocks: A generalised impulse response function analysis for three European countries. Journal of Economic Integration 18 (4), 794816.
Patterson D.M. and R.A. Ashley 2000 A Nonlinear Time Series Workshop, London: Kluwer Academic.
Pelloni G. and W. Polasek 1999 A Bayesian VAR-GARCH Analysis of Sectoral Labour Reallocation. Discussion Paper 99/4, University of York, UK.
Pelloni G. and W. Polasek 2003 Macroeconomic effects of sectoral shocks in U.S., U.K. and Germany: A BVAR-GARCH-M approach. Computational Economics 21, 6583.
Potter S.M. 1999 Nonlinear time series modelling: An introduction. Journal of Economic Surveys 13, 505528.
Tsay R.S. 1986 Nonlinearity tests for time series. Biometrica 73, 461466.
Van Dijk D., P.H. Franses, and R. Paap 2002 A nonlinear long memory model for the US unemployment. Journal of Econometrics 110, 135165.
Wallis K.F. 1987 Time series analysis of bounded economic variables. Journal of Time Series Analysis 8 (1), 115123.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed