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Stability of Okun's Law in a Codependent System

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  • Candelon, Bertrand C.B.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Hecq, Alain W.J.

    (University of Limburg, Department of Quantitative Economics, Maastricht)

Abstract

In this paper, we question the stability of Okun's law, i.e. the empirical regularity that seems to hold between economic activity and unemployment. To this aim, we propose to build two complementary indicators of real rigidity, using the codependence methodology. The first one is a recursive estimation of Okun's coefficient, and the second one is a measure of persistence defined by the dimension of the dynamic structure. For the sample of OECD countries that we considered, it appears that only two of them (Italy and Belgium) present a high degree of such rigidities. The recursive analysis proves that all countries tend to be more flexible, confirming the movement towards more flexible labor markets. This analysis provides powerful tools for a better understanding of the dynamics within Okun's law.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1998016.

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Length: 31
Date of creation: 01 Jul 1998
Date of revision:
Handle: RePEc:ctl:louvir:1998016

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Keywords: codependence; Okun's Law; GMM; Recursive Estimates;

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Cited by:
  1. Ian H.K. Leow, 2004. "A Simple Dynamic Model of Big-push," Econometric Society 2004 Australasian Meetings, Econometric Society 218, Econometric Society.
  2. Carlos Enrique Carrasco Gutierrez & Fábio Augusto Reis Gomes, 2006. "Evidence About Mercosur’S Business Cycle," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 179, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2000. "Testing for Common Cyclical Features in Nonstationary Panel Data Models," CESifo Working Paper Series 248, CESifo Group Munich.
  4. Michel Beine & Bertrand Candelon & Alain Hecq, 2000. "Assessing a Perfect European Optimum Currency Area: A Common Cycles Approach," Empirica, Springer, Springer, vol. 27(2), pages 115-132, June.

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