Linear and nonlinear analysis for testing the hysteresis hypothesis in Türkiye

Abstract

Unemployment is an important socioeconomic problem. Economic shocks especially affect the economies of developing countries negatively. The hysteresis hypothesis expresses the view that temporary shocks can have a permanent effect on unemployment rates. The hysteresis hypothesis can be considered as an objection to the natural rate hypothesis. From a unit root perspective, if the series contain a unit root, hysteresis hypothesis is valid. If not, hysteresis hypothesis is not valid. This study aims to test the hysteresis hypothesis by using data covering the period of 2014M01-2023M07 in the Turkish economy. In the study, general unemployment and youth unemployment rates have been discussed. Some of the most commonly used linear and nonlinear unit root tests in applied studies have been included in the study in order to make comparisons. By detecting that the series are nonstationary according to linear and nonlinear unit root tests, it can be inferred that hysteresis hypothesis is valid in Türkiye. This shows that the effects of shocks are permanent. Effective policies against unemployment need to be developed.