Most econometric analyses of persistence focus on the existence of non-stationary unemployment but not the origin of this. The present research contains a multivariate econometric framework for identifying and comparing different sources of unemployment persistence (e.g., slow adjustment versus a slowly moving equilibrium rate). The framework contains readily applicable formulas for testing different hypotheses of persistence and is used to identify the causes of this in the UK macroeconomy. The evidence suggests that persistence has been due to a slowly moving equilibrium, driven by the price of crude oil, and not to slow adjustment, for example as related to the process of wage formation, as has often been emphasized.
I would like to thank two anonymous referees, Christian Groth, Marc Klemp and Søren Johansen for their valuable comments and suggestions for improvements. Funding from Independent Research Fund Denmark is gratefully acknowledged.
The online version of this article ( https://doi.org/10.1007/s00181-017-1400-9) contains supplementary material, which is available to authorized users.
p-values in the square brackets.