European unemployment nonlinear dynamics over the business cycles: Markov switching approach

The dynamics of European unemployment showed considerable fluctuations and asymmetric behaviour during business cycles over the past decade. The dynamic pattern of unemployment rate demonstrated the significant differences for different countries during its growth and decline periods. To describe the differences in dynamic properties of unemployment rate in different countries and economic situation, we developed the Markov switching autoregressive models with time-varying probabilities of transition between behaviour regimes. The results revealed that the unemployment rate in EU countries during 2000-2016 behaved asymmetrically over the business cycle. Therefore, we got different processes for describing unemployment dynamics in each phase of the economy.