Asymmetry in the response of unemployment to output changes in Greece: Evidence from hidden co-integration

In this paper we investigate the relationship between unemployment and output in Greece for a prolonged period of time. We use quarterly data for unemployment and output, spanning the time period from 1990 to 2014. Our aim is to investigate whether unemployment is characterized by an asymmetric behavior to changes in output. In order to do that, we employ the (Granger & Yoon, 2002) hidden co-integration approach which ex ante decomposes the aggregate output and unemployment variables in positive and negative values. Assessing the potential existence of asymmetric effects is essential for the evolution of unemployment following the rebound in output after crises and, hence, the implementation of active labour market policies. Our results indicate that the unemployment rate responds asymmetrically to changes in output.