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The PIGS, does the Group Exist? An empirical macroeconomic analysis based on the Okun Law

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Author Info
João Sousa Andrade () (GEMF/Faculdade de Economia, Universidade de Coimbra)
Abstract

Will the current crisis accelerate the PIGS collapse? We approach the subject by comparing the responses of the unemployment rate to an output shock on those economies (Portugal, Italy, Greece and Spain) with those of a benchmark economy – the USA. Our methodological strategy relies on one of the pillars of empirical macroeconomics the Okun Law (OL) which we incorporated in a VAR model. We addressed two drawbacks usually present in OL, the interdependency problem and the non-stationarity problem. We have included in our models the participation rate as a way to overcome the former problem and for the later one we have analysed the time series properties of the variables used on our models. We propose stable VAR models for each of the economies involved and also a fixed-effects panel-VAR for the PIGS. The time for the absorption of shocks and the disequilibrium levels are much more favourable to USA, but we conclude also that in terms of unemployment we are not allowed to consider the PIGS as a homogenous group.

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Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2009-11.

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Length: 26 pages
Date of creation: Sep 2009
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Handle: RePEc:gmf:wpaper:2009-11

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Related research
Keywords: Okun Law; C-I; VAR; Participation rate; Stability and Impulses.;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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