We suggest a new test for hysteresis in unemployment based on an unobserved components model. Observed unemployment rates are decomposed into a natural rate component and a cyclical component. The impact of lagged cyclical shocks on the current natural component is the measure of hysteresis. To...

The Hodrick-Prescott filter is widely used to extract cyclical movements about trend in macroeconomic time series. The filter is based on the assumption that nonstationary movements in time series are captured by smooth and slowly changing trends. This note shows that applying the...