Is there a nonlinear co-movement in the EU countries’ unemployment? Mariam Camarero * , Javier Ordo ´n ˜ez Department of Economics, Jaume I University, Campus de Riu Sec. E-12080 Castello ´n, Spain Received 24 February 2005; received in revised form 29 March 2006; accepted 18 April 2006 Available online 20 September 2006 Abstract This paper analyzes the hypothesis of hysteresis and co-movement among European unemployment rates using unit root and co-trending tests that allow for nonlinearities. The results are favorable to stationarity and common patterns in European unemployment. D 2006 Elsevier B.V. All rights reserved. Keywords: Unemployment; European Union; Unit root; Co-trending; Nonlinear trend JEL classification: C32; E24 1. Introduction The majority of the empirical literature on the time series properties of unemployment in the European countries has concentrated on trying to assess the existence of hysteresis. Hysteresis is a hypothesized property of unemployment rates which implies that a short-term rise in unemployment tends to persist and, consequently, the equilibrium rate of unemployment increases. This concept has been a central issue in the discussion about the high and persistent European unemployment. Hysteresis implies that unemployment can be statistically characterized as a non-stationarity process. However, testing for hysteresis might not be easy given the difficulty to distinguish between non- 0165-1765/$ - see front matter D 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.econlet.2006.04.002 * Corresponding author. Tel.: +34 964728595; fax: +34 964728591. E-mail address: camarero@eco.uji.es (M. Camarero). Economics Letters 93 (2006) 157 – 162 www.elsevier.com/locate/econbase