Does the Process of Spatial Aggregation of UK Unemployment Rate Series Serve to Induce or Remove Evidence of Asymmetry

Max Stevenson, David Jones and Maurice Peat
School of Finance and Economics, University of Technology, Sydney
M.Stevenson@uts.edu.au

Abstract

Asymmetry in the business cycle has been recognised as a nonlinear phenomenon by a number of recent studies which have examined unemployment rate series in North America, Europe and Australia. While many of these studies hypothesise that linear modelling techniques are inadequate for modelling aggregate unemployment rate series, other studies provide evidence to the contrary. Further conflicting results emerge from studies which attempt to answer the questions as to whether nonlinearities in the disaggregated data are driving nonlinear structure in the aggregated series or, whether nonlinearities are being masked by the disaggregation process?

Using UK aggregate and regional unemployment rate data, this study seeks an answer to these questions. Analysing the dynamics of the appropriate best-fitting linear and nonlinear models indicates whether nonlinearities are present in the aggregate series and whether the process of aggregation across spatial market series serves to induce or remove any evidence of nonlinearity in the aggregate series.