Testing unemployment persistence in Central and Eastern European countries

Abstract

This study investigates whether stochastic properties of the unemployment rate in ten Central and Eastern European Countries (CEE) countries: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia can be explained by the nonaccelerating inflation rate of unemployment or the hysteresis hypotheses. We primarily show the cross-sectional dependence in unemployment rates, and then apply panel-based unit root tests that take cross-section dependence into account. The empirical findings indicate that there is no mean-reverting process in unemployment rates for ten CEE countries. Thus the results provide evidences for validity of the hysteresis hypothesis—unemployment persistence—in related CEE countries.