UK Unemployment Dynamics: a Fractionally Cointegrated Approach

This paper examines the relationship between unemployment, real oil prices and real interest rates in the UK by means of fractional cointegration techniques. In doing so, we allow for a much greater degree of flexibility in the dynamic behaviour of the series than the one achieved by the classical I(0)/I(1)based representations. The results indicate that the three series are fractionally cointegrated, implying that there is a slow adjustment process towards a long run equilibrium relationship.