Fractional Integration and the Dynamics of UK Unemployment

• Autores: Luis Alberiko Gil Alaña, S. G. B. Henry
• Localización: Oxford bulletin of economics and statistics, ISSN 0305-9049, Vol. 65, Nº. 2, 2003, págs. 221-239
• Idioma: inglés
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• Resumen

  • This article is concerned with estimating the dynamic behaviour of UK unemployment using fractional integration methods. The question it considers is whether an unemployment model using a relatively small set of determinants of unemployment is consistent with the persistence which estimates an integrated model yield, or the much long‐lasting estimates obtained from fractional integration. Our empirical tests favour the latter version. The results show that when accounting for UK unemployment in terms of lagged values of the real oil price and the real interest rate, unemployment appears fractionally integrated. This finding means that although unemployment is mean reverting, once it is shocked it may take a very long time to recover, and our estimates of the response times are considerably in excess of those previously reported in the literature.