Does the Process of Spatial Aggregation of U.K. Unemplyment Rate Series Serve to Induce or Remove Evidence of Asymmetry in the Business Cycle

Asymmetry in the business cycle has been recognised as a nonlinear phenomenon by a number of recent studies which have examined unemployment rate series in North America, Europe and Australia. While many of these studies hypothesise that linear modelling techniques are inadequate for modelling aggregate unemployment rate series, other studies provide evidence to the contrary. Further conflicting results emerge from studies which attempt to answer the questions as to whether nonlinearities in the disaggregated data are driving nonlinear structure in the aggregated series or, whether nonlinearities are being masked by the disaggregation process? Using U.K. aggregate and regional unemployment rate data, this study seeks to answer to these questions. Analysing the dynamics of the appropriate best-fitting linear and nonlinear models indicates whether nonlinearities are present in the aggregate series and whether the process of aggregation across spatial market series serves to induce or remove any evidence of nonlinearity in the aggreagate series.