(AN EMPİRİCAL STUDY ON VALİDİTY OF UNEMPLOYMENT HYSTERİA HYPOTHESİS İN TURKEY (1923-2019)

Abstract

Blanchard and Summers (1986), one of the proponents of the hysteria hypothesis, argued that cyclical supply shocks would create structural changes in unemployment and create a lasting effect on unemployment rates in the long term and would bring up the natural unemployment rate. This mechanism, called the unemployment hysteria, is briefly described as the fact that unemployment rates are not stable, do not have the ability to return to its average, ie have a unit root process. In other words, the unemployment hysteria is that unemployment rates follow a shift away from balance rather than converging to a level of equilibrium in the long run. The purpose of this research is to test the hypothesis for the existence of unemployment hysteria for Turkey. Accordingly, annual unemployment rate data for the period 1923-2019 were used. Data during the period 1923 to 1988 for Turkey, which is not available in the official source, were obtained from the study of Bulutay (1995). The data in and after 1989 were obtained from the Turkey Statistical Institute data base. To test the stability of the unemployment rate series for Turkey, Fractional Frequency Fourier ADF unit root test introduced by Christopoulos and Leon-Ledesma (2011) was applied. The generated trigonometric terms were significant. According to the results of the unit root test, it was concluded that the null hypothesis could not be rejected, ie unemployment series is not stationary. In addition, according to the frequency value the structural change in the series is permanent. Obtained results in the process covering the years 1923-2019, offers evidence that hypothesis of hysteria is valid for unemployment rates of Turkey.