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Okun’s law: evidence of 13 selected developed countries

Author

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  • Matiur Rahman

    (McNeese State University)

  • Muhammad Mustafa

    (South Carolina State University)

Abstract

This paper re-examines the validity of Okun’s Law for 13 selected developed countries over 1970–2013. λ maxand λ trace tests reveal cointegrating relationship between unemployment rate and real GDP growth in all countries except Germany. However, dynamic OLS estimates portray a somewhat different picture. The estimates of bivariate error-correction model (ECM) unveil that Okun’s Law is quite valid only for the USA and South Korea. At the same time, evidence is relatively weaker for Canada, Finland, France, Japan, Italy, The Netherlands, New Zealand, Sweden, UK and Australia. However, it is invalid for Germany.

Suggested Citation

  • Matiur Rahman & Muhammad Mustafa, 2017. "Okun’s law: evidence of 13 selected developed countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 297-310, April.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-015-9351-5
    DOI: 10.1007/s12197-015-9351-5
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    Cited by:

    1. Asma Raies, 2023. "Sustainable Employment in Developing and Emerging Countries: Testing Augmented Okun’s Law in Light of Institutional Quality," Sustainability, MDPI, vol. 15(4), pages 1-13, February.
    2. Chenini Moussa & Ayad Hicham & Attouchi Manel & Dahmani Mohamed Driouche, 2023. "Testing the Validity of Okun’s Law in Algeria: Is there a difference between Maki’s Cointegration and Quantile’s Regression Results?," Folia Oeconomica Stetinensia, Sciendo, vol. 23(1), pages 42-63, June.

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    More about this item

    Keywords

    Okun’s law; Real GDP growth; Unemployment rate; Cointegration; Vecm;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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