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Hysteresis and unemployment: a preliminary investigation

Cross, Rod and Darby, Julia and Piscitelli, Laura and Ireland, Jonathan (2005) Hysteresis and unemployment: a preliminary investigation. In: The Science of Hysteresis (Volume 1). Academic Press, pp. 667-699. ISBN 0124808743

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Abstract

This paper points out what hysteresis is using a simple model of market entry and exit. A procedure for calculating hysteresis indices for economic time series is outlined. Some preliminary results are presented to assess the explanatory power of hysteresis variables with regard to the equilibrium rate of unemployment in the UK. We find that both natural and "unnatural" variables enter a cointegrating vector for UK unemployment 1959-1996. The natural variable is the replacement ratio. The 'unnatural' variables are the hysteresis index of the exchange rate; and hysteresis indices for the real oil price and the real interest rate.