An Unstable Okun’s Law, Not the Best Rule of Thumb

Meyer, Brent; Tasci, Murat

doi:10.26509/frbc-ec-201208

Cited by 29 publications

(36 citation statements)

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“…Some, such as Knotek (2007), suggest a nonlinearity: the effect of output on unemployment is larger during recessions than during expansions. Others, such as Meyer and Tasci (2012), suggest that the coefficient in Okun's Law varies over time.…”

Section: Stabilitymentioning

confidence: 99%

Okun's Law: Fit at 50?

Ball

Leigh²,

Loungani³

2013

IMF Working Papers

108

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This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in 20 advanced economies since 1980. We find that Okun's Law is a strong relationship in most countries, and one that is fairly stable over time. Accounts of breakdowns in the Law, such as the emergence of "jobless recoveries," are flawed or exaggerated. We also find that the coefficient in the relationship-the effect of a 1% change in output on the unemployment rate-varies substantially across countries. This variation is partly explained by idiosyncratic features of national labor markets, but it is not related to differences in employment protection legislation. JEL codes: E24, E32We thank the editor and two referees for very useful comments. We are also grateful to

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Section: Stabilitymentioning

confidence: 99%

Okun's Law: Fit at 50?

Ball

Leigh²,

Loungani³

2013

IMF Working Papers

108

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“…Given that a causality which runs from unemployment to output is also consistent with production theory, this approach is used in the estimation which follows. 2 As the review of the related literature in the previous section has indicated, some studies have found Okun's relationship to be unstable over time (e.g., Meyer and Tasci, 2012;Owyang and Sekhposyan, 2012). However, this can be attributed to higher macroeconomic volatility, a finding which, although known for quite some time in the literature (see Fernández-Villaverde and Rubio-Ramírez (2010) for a recent overview), has yet to be incorporated in models aiming to quantify the output/unemployment relationship.…”

Section: Methodology and Datamentioning

confidence: 99%

Examining the Stability of Okun's Coefficient

Michail

2018

Bulletin of Econ Res

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The stability of Okun's law coefficient in the United States from 1949 to 2015 is examined using a regression with GARCH errors in order to capture the volatility of the series. Rolling estimations suggest that taking the volatility of the series into account yields more stable results compared to the simple OLS estimation, irrespective of the specification (gap or growth model), the data frequency (monthly or quarterly), or the length of the rolling window. The results also suggest that the persistence of shocks became much more important in explaining contemporaneous volatility when data from the recent global financial crisis were incorporated. In contrast, the feedthrough of output shocks in next period's output volatility was more important in the past, and especially during the 1970s stagflation period, but has been declining since.

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“…Okun' s Law expresses a positive relationship between economic growth and employment or a negative relationship between economic growth and unemployment rate. This law simply put, say that a one percent (1%) increase in gross domestic product (GDP) will result in a 0.3-0.5 percent decrease in unemployment (Meyer & Tasci, 2012). Globally, an economy with relative low economic growth condition finds it difficult and slow to achieve creation of new jobs.…”

Section: Literature Reviewmentioning

confidence: 99%

Autoregressive Distributed Lag Modeling of the Effects of Some Macroeconomic Variables on Economic Growth in Nigeria

Adenomon¹,

Ojo²

2019

Preprint

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Research background: Relationship between inflation rate, unemployment rate, interest rate and real gross domestic product per capita in Nigeria. However, there seems to be a short-run or long-run relationship among the macroeconomic variables.Purpose: This study investigated the impact of the inflation rate, unemployment rate and interest rate on real gross domestic product per capita (RGDPPC) (proxy for economic growth) and proffered recommendations towards enhancing economic growth and to reduce the distasteful effects of inflation rate, unemployment rate and interest rate in Nigeria in this present time economic challenges.Research methodology: This study applied a linear dynamic model Autoregressive Distributed Lag (ARDL) modeling technique to analyze the short-run dynamics and long-run relationship of the economic growth in Nigeria over the sample period between 1984 and 2017 using annual secondary data extracted from World Bank Development Indicators Report (last updated January 2019).Results: The empirical results showed that there was long-run relationship between inflation rate, unemployment rate and interest rate on real gross domestic product per capita (proxy for economic growth) in Nigeria. The result further revealed that only unemployment rate had a significant positive impact on real gross domestic product per capita in the long-run and inflation rate had a significant negative impact on real gross domestic product per capita in the short-run.Novelty: Therefore, the study concluded that unemployment rate and inflation rate proved to have significant impacts on economic growth in the long-run and short-run respectively. Formulation of policies to reduce unemployment through the adoption of labour concentrated technique of production, entrepreneurship development and policy to keep the inflation rate at single digit.

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An Unstable Okun’s Law, Not the Best Rule of Thumb

Cited by 29 publications

References 0 publications

Okun's Law: Fit at 50?

Okun's Law: Fit at 50?

Examining the Stability of Okun's Coefficient

Autoregressive Distributed Lag Modeling of the Effects of Some Macroeconomic Variables on Economic Growth in Nigeria

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