Unemployment hysteresis in Canada: an approach based on long-memory time series models
Long-memory univariate time series models, known as ARFIMA, are applied to measure shock persistence for Canada and the USA. Both output and unemployment exhibit higher persistence in Canada than in the USA. The finding that the rate of unemployment in Canada exhibits high shock persistence supports the notion of hysteresis in unemployment. The analysis of disaggregated Canadian unemployment rates indicates that hysteresis is most pronounced for adult male workers. The same class of models is used to obtain a generalization of the Beveridge-Nelson decomposition of time series into a permanent and a cyclical component. The permanent component of the Canadian unemployment rate exhibits a kink in the early 1970s.