IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The Dynamics of Economic Growth and Unemployment in Major European Countries: Analysis of Okun´s Law

  • Zagler, Martin


This paper analyzes a vector error correction model of economic growth and unemployment in four major European economies, France, Germany, Italy, and the UK. We find that unemployment and economic growth are cointegrated, and driven be the same autoregressive unit root present in most endogenous growth models. In the long run, economic growth and unemployment are positively correlated, as suggested by recent economic theories on endogenous growth and unemployment. In the short-run, an increase in the equilibrium unemployment rate is related to a decline in economic growth rates. The short-run dynamics of economic growth and unemployment therefore remain consistent with Okun's law. Okun's coefficient is in line with previous estimates for all countries except for the UK, whose labor market appears much more flexible in accommodating adverse transitory shocks than continental labor markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: No

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 3 (2003)
Issue (Month): 3 ()

in new window

Handle: RePEc:eaa:aeinde:v:3:y:2003:i:3_18
Contact details of provider: Web page:

Order Information: Web: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
  2. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  3. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July.
  4. Campbell, John Y. & Mankiw, N. Gregory, 1989. "International evidence on the persistence of economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 319-333, March.
  5. Gil-Alana, Luis A, 2002. "Testing the order of integration of the UK Unemployment," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 2(1).
  6. Philippe Aghion & Peter Howitt, 1994. "Growth and Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 477-494.
  7. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Gene M. Grossman (ed.), 1996. "Economic Growth," Books, Edward Elgar Publishing, volume 0, number 553.
  9. Filippo Altissimo & Giovanni L. Violante, 2001. "The non-linear dynamics of output and unemployment in the U.S," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(4), pages 461-486.
  10. Zagler, M., 2000. "Aggregate Demand, Economic Growth, and Unemployment," Economics Working Papers eco2000/17, European University Institute.
  11. Banerjee, Anindya & Hendry, David F, 1992. "Testing Integration and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 225-55, August.
  12. John Y. Campbell & N. Gregory Mankiw, 1987. "Are Output Fluctuations Transitory?," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 857-880.
  13. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
  14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:3:y:2003:i:3_18. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.