Dynamic Asymmetries In U.S. Unemployment

We examine dynamic asymmetries in U.S unemployment using nonlinear time series models and Bayesian methods. We#ndstrong statistical evidence in favor of a two-regime threshold autoregressive model. Empirical results indicate that, once wetakeinto account both parameter and model uncertainty, there are economically interesting asymmetries in the unemployment rate. One #nding of particular interest is that shocks whichlower the unemployment rate tend to have a smaller e#ect than shocks which raise the unemployment rate. This #nding is consistent with unemploymentrises being sudden and falls gradual. Keywords: Nonlinearity, Threshold Autoregression, Bayesian, Unemployment. JEL: C11,C22,C52,E24. # Financial support from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. y Financial support from the NSF under grant SES 9211726 and the Center for Computable Economics at UCLA is gratefully acknowledged. 1 Introduction The vast majority of reduced fo..