Structural Var and Causality Approach to the Unemployment Hysteresis: The Case of Japan

Up till now, the majority of works have done by economists analysing unemployment hysteresis based on the utilisation of unit root tests to the series of unemployment; accordingly, these studies are carried out within the framework of empirical studies that neglect other dynamics affecting unemployment. Due to the studies conducted in this direction, it is not possible to examine the causality relation of unemployment series with other variables and the effects of structural shocks on unemployment. This study is an examination of the Japanese economy that allows determining the hysteresis effect in Japan as a result of the traditional unit roots tests with the one allowing a structural break, while it is possible to evaluate the unemployment hysteresis by structural shocks with SVAR approach; by Toda and Yamamoto causality analysis, the investigation of causality relations including the direction of the causality made in terms of major economic indicators. In this context, common findings obtained from unit root tests implemented to Japan validate the hypothesis of unemployment hysteresis. In terms of Toda and Yamamoto Granger causality, there is only one-way causality from GDP to unemployment; additionally, as a result of the SVAR analysis, the essence of unemployment volatility is dominated by non-demand shocks