Persistence in the unemployment and inflation relationship. Evidence from 38 OECD countries.
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Abstract
This paper focuses on the analysis of persistence in the unemployment and inflation rates in a group of 38 OECD countries as well as the relationship between the two variables. For this purpose, fractional integration is used. The results indicate that the two individual variables are highly persistence, especially the unemployment rate, and evidence of mean reversion is only found in the cases of Colombia and Costa Rica for unemployment and in Norway for inflation. Conducting the analysis on the difference between the two variables, the order of integration is significantly smaller in a number of cases, and reversion to the mean takes place in the cases of Austria, Switzerland, Costa Rica, Israel and Turkey. Policy recommendations derived from the results are presented in the conclusion section of the manuscript.