Hysteresis in EU Member States: A Comprehensive Analysis Using the Fourier Approach

This study examines the persistence of inflation and unemployment in European Union (EU) member states between 1991 and 2023, focusing on hysteresis effects and the applicability of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) framework. The EU represents a unique empirical setting due to the diversity of its national labour markets and fiscal structures within a shared economic space. These asymmetries increase the likelihood of long-term macroeconomic imbalances, making the analysis of hysteresis particularly relevant. The study addresses this issue using nonlinear econometric techniques, specifically the Fourier KPSS test and ECM-based bootstrap cointegration analysis, to detect smooth structural changes and long-run relationships between inflation and unemployment. The empirical results indicate strong evidence of inflation hysteresis across most EU countries and selective unemployment hysteresis in specific cases such as Germany, Hungary, and Ireland. Moreover, a significant long-term cointegration between inflation and unemployment is observed, challenging the conventional assumptions of the Phillips Curve. The study contributes methodologically by integrating advanced testing procedures and empirically by offering a comprehensive, comparative perspective across member states. These findings highlight the need for flexible, country-specific policy strategies to mitigate persistent inflation and labour market rigidities, thereby fostering long-term macroeconomic stability and convergence within the EU.