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Okun's law - a meta analysis

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  • Roger Perman

    (Department of Economics, University of Strathclyde)

  • Stephan Gaetan

    (CREM)

  • Christophe Tavera

    (CREM)

Abstract

This paper seeks to identify whether there is a representative empirical Okun’s Law coefficient (OLC) and to measure its size. We carry out a meta regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the ‘true’ OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both sub-samples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both sub-samples. Third, bias-corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are -0.25 for the unemployment sub-sample and -0.61 for the output-sub sample; with a multivariate MRA methodology, the estimated true effects are -0.40 and -1.02 for the unemployment and the output-sub samples respectively.

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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1311.

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Length: 29 pages
Date of creation: Jul 2013
Date of revision:
Publication status: Published
Handle: RePEc:str:wpaper:1311

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Keywords: Okuns law; meta analysis; Okun's law coefficient; OLC;

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References

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  1. Freeman, Donald G, 2001. "Panel Tests of Okun's Law for Ten Industrial Countries," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 511-23, October.
  2. Adolfo Maza & José Villaverde, 2007. "Okun's law in the Spanish regions," Economics Bulletin, AccessEcon, vol. 18(5), pages 1-11.
  3. Paramsothy Silvapulle & Imad Moosa & Mervyn Silvapulle, 2004. "Asymmetry in Okun's law," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 353-374, May.
  4. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 309-345, 07.
  5. Dany Lang & Christian de Peretti, 2009. "A strong hysteretic model of Okun's Law: theory and a preliminary investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(4), pages 445-462.
  6. Blackley, Paul R., 1991. "The measurement and determination of Okun's Law: Evidence from state economies," Journal of Macroeconomics, Elsevier, vol. 13(4), pages 641-656.
  7. Robert J. Gordon, 1984. "Unemployment and Potential Output in the 1980s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 537-568.
  8. Apel, Mikael & Jansson, Per, 1999. "A theory-consistent system approach for estimating potential output and the NAIRU," Economics Letters, Elsevier, vol. 64(3), pages 271-275, September.
  9. Owyang, Michael T. & Sekhposyan, Tatevik, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
  10. T. D. Stanley, 2008. "Meta-Regression Methods for Detecting and Estimating Empirical Effects in the Presence of Publication Selection," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 103-127, 02.
  11. Ho-Chuan (River) Huang & Ya-Kai Chang, 2005. "INVESTIGATING OKUN's LAW BY THE STRUCTURAL BREAK WITH THRESHOLD APPROACH: EVIDENCE FROM CANADA," Manchester School, University of Manchester, vol. 73(5), pages 599-611, 09.
  12. Stanley, T.D. & Doucouliagos, Chris & Jarrell, Stephen B., 2008. "Meta-regression analysis as the socio-economics of economics research," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 276-292, February.
  13. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
  14. Brian Silverstone & Richard Harris, 2001. "Testing for asymmetry in Okun's law: A cross-country comparison," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-13.
  15. Tomáš Havránek, 2010. "Rose effect and the euro: is the magic gone?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(2), pages 241-261, June.
  16. Hristos Doucouliagos & T.D. Stanley, 2008. "Theory Competition and Selectivity: Are All Economic Facts Greatly Exaggerated?," Economics Series 2008_06, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
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