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Unemployment and the GNP Gap: Okun's Law Revisited

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  • Yu Hsing

    (Southeastern Louisiana University)

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Abstract

This paper reexamines Okun's law by applying the Box-Cox transformation of variables. Major findings are that the effect of a change in the GNP gap on the unemployment rate varies from -0.280 in 1969.1 to -0.801 in 1982.4; the effect is larger (smaller) when the unemployment rate is higher (lower); and the linear form can be rejected at the 1 percent level. To reduce the unemployment rate by one percentage point in 1982.Q4, the author may overestimate the increase in actual real GNP by as much as $31 billion if an incorrect functional form is chosen.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume17/V17N4P409_416.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 17 (1991)
Issue (Month): 4 (Oct-Dec)
Pages: 409-416

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Handle: RePEc:eej:eeconj:v:17:y:1991:i:4:p:409-416

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
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Web page: http://www.ramapo.edu/eea/journal.html
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Related research

Keywords: Okun's Law; Unemployment Rate; Unemployment;

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References

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  1. Seaks, Terry G & Layson, Stephen K, 1983. "Box-Cox Estimation with Standard Econometric Problems," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 160-64, February.
  2. Paul D. Thistle & John P. Formby, 1988. "On One Parameter Functional Forms for Lorenz Curves," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 14(1), pages 81-85, Jan-Mar.
  3. Smyth, David J & Dua, Pami, 1988. "Public Perceptions of Macroeconomic Policy: An Econometric Analysis of the Reagan Presidency," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 357-61, May.
  4. Spitzer, John J, 1982. "A Primer on Box-Cox Estimation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 307-13, May.
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Cited by:
  1. Domicián Máté, 2010. "Estimating Labour Market Performance in Twenty-Three OECD Countries, 1980-2009," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 213-232, December.

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