HYSTERESIS HYPOTHESIS VS. STRUCTURALIST VIEW IN CANADA: A NEW TEST FOR THE SHARP BREAK AND SMOOTH SHIFT

Abstract

We have investigated the hysteresis hypothesis using a newly proposed unit root test which considers both sharp breaks and smooth shifts in its testing process for Canada during the period 1960-2019 in this study. The so-called unit root test allows researchers control for sharp breaks such as crises, smooth shifts such as nonlinearities, simultaneously. In proposing this highly complex trend structure, we are also proposing a new way for the macroeconomic theorist to model the unemployment rate following the structuralist view. It takes into account the structural breaks and possible nonlinearities as form of smooth shifts which leads to a new form of structuralist view. The empirical results display that the unemployment rates in Canada follow a non-hysteresis path under the presence of sharp and smooth structural breaks.