Abstract:

Changes in unemployment rates and unemployment hysterics in some EU countries bring significant challenges to policymakers. Determining that the structure of the unemployment rates in the country is better explained by the unemployment hystery or the natural rate hypothesis becomes important for policy makers to be able to create appropriate policies. Therefore, the hypothesis of unemployment hysteria in this study was studied using the Fourier-KPSS panel stagnation test, which takes into account the structural switches and horizontal cut dependency recommended by Nazlıoğlu and Karul (2017) based on the 1991-2016 years for the European Union countries and Turkey. The findings show that the hypothesis of unemployment hysteria applies to other EU countries except Latvia, Belgium, Cyprus and Sweden and Turkey.

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Abstract:

The changes in the unemployment rate and its hysteria in some EU countries impose significant challenges to  policy makers. To implement appropriate policies, it is important to examine whether the movement of the unemployment rates in the country is better corresponded by the unemployment hysteresis or by the natural rate hypothesis of unemployment. Therefore, this study examines the hysteresis effects in unemployment using panel data for European Union countries and Turkey for the period of 1991–2016. For the test we utilize Fourier- KPSS panel stationarity test which takes into account structural shifts and cross-section dependency proposed by Nazlioglu and Karul (2017). The results reveal that unemployment hysteresis hypothesis cannot be rejected for the EU countries and Turkey except for Latvia, Belgium, Cyprus and Sweden.