Testing Unemployment Hysteresis in European Countries : Argument Based on Three-Generation Unit Root Tests

This paper employs a comprehensive set of “state-of-the-art” unit root tests, including the autoregressive neural network (ARNN) unit root test (Yaya et al. 2021; Oxford Bulletin of Economics and Statistics), to investigate unemployment hysteresis in five European countries: France, Italy, the Netherlands, Sweden and the United Kingdom. Unit root tests applied in the paper are classified into three generations, based on nonlinearity, structural breaks and fractional integration. Over-rejection of unit roots is observed when instantaneous breaks are considered in the ADF and FADF tests, while we confirm the plausibility of nonlinearity in the unemployment rate of these European countries. The results show non-rejection of unemployment hysteresis in the five countries. Caution should therefore be made when applying the ADF–SB and FADF–SB tests