Essays in applied macroeconometricsUnemployment and inflation from a Spanish regional perspective

Abstract

This Doctoral Thesis is rooted in the field of applied macroeconometrics. PANIC (Panel Analysis of Nonstationarity in Idiosyncratic and Common components) techniques, among others, are used. The econometric techniques are basically applied to two fundamental macroeconomic variables (unemployment and inflation), from a Spanish regional perspective. Among other results, we find out a high persistence for both variables. Economic and labour policy prescriptions are offered and discussed. This thesis investigates the time series properties of the unemployment rate of the Spanish regions as well as of the inflation rates of the Spanish regions and provinces. For that purpose, we employ the PANIC procedures, which enable us to decompose the observed series under study into common and idiosyncratic components. This allows us to identify the exact source behind the possible nonstationarity found in either Spanish sub-national unemployment or inflation rates. Overall, our analysis with three different proxies for the excess of labour supply renders strong support for the hysteresis hypothesis, which appears to be caused by a common stochastic trend driving all the regional unemployment series. The application of median-unbiased estimation techniques to obtain the persistence parameter and the half-life of a shock to the idiosyncratic and common components in which the Spanish regional unemployment rates can be decomposed renders evidence fully consistent with that obtained from the PANIC analysis. In addition, we try to determine the macroeconomic and institutional factors that are able to explain the time series evolution of the common factor, and in turn help us shed light on the ultimate sources of hysteresis. Our results show how the variables that our empirical analysis emphasises as relevant closely fit into the main causes of the Spanish unemployment behaviour. As regards the analysis of inflation persistence, we investigate the stochastic properties of several inflation rates for the Spanish economy using the Consumer Price Index (CPI) for the regions and 12 groups of goods and services, and the Producer Price Index (PPI) for 26 industrial sectors through the PANIC approach. Our analysis provides strong evidence of the presence of a common stochastic trend driving the observed series in the panel of CPI-based inflation rate series for the 17 regions. This, coupled with the presence of a jointly stationary idiosyncratic component, implies the existence of pairwise cointegration across 6 the Spanish regional CPI-based inflation rates, which show a clear pattern of convergence over time. This gives an indication of increased geographical homogeneity in the consumption patterns exhibited by consumers in the different regions of Spain. This contrasts with the existence of more heterogeneity in the patterns of production across regions, as reflected in the fact that regions are not specialising in the same manufacturing and energy products. This thesis also investigates the behaviour of the Spanish CPI-based inflation rates at the provincial level over two different spans of time (1955-1981, 1982-present). The results indicate that the second period appears to exhibit more convergence across provincial inflation rates, which are found to be driven by a common stochastic trend. We point to a long list of institutional and economic changes, at national and international levels, as the potential factors that might have led to this new pattern. In addition to confirming the remarkable persistence shown by the Spanish inflation, already put forward in previous works, the PANIC analysis identifies a higher importance of the common component of the series in the second period studied. Besides inflation, we draw attention to a battery of economic and labour variables, mostly through regional data, and we conclude that they tend to converge as well, particularly in the case of our second period of analysis. As with the analysis of regional inflation, we also find that the shopping basket across Spanish provinces has tended to become more homogeneous. In summary, a variety of institutional and economic changes, which we regard as having increased essentially since the beginning of the 80s, have brought about a regime shift in the area under study, in the form of a marked pattern of geographical convergence in the inflation rates.