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An empirical analysis of Okun’s laws in ASEAN using time-varying parameter model

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  • Kim, Jun
  • Yoon, Jong Cheol
  • Jei, Sang Young

Abstract

This study revisits Okun’s law for the ASEAN-6. We apply a time-varying parameter model to simultaneously consider nonlinearity and asymmetric characteristics of Okun’s law. The result shows that Okun’s law does not hold in other countries except Thailand, Philippines, and Malaysia. That is because FDI plays an important role in economic growth, and the shortage of skilled workers and the surplus of unskilled workers coexist. On the other hand, Okun’s law is statistically valid for Thailand, Malaysia, and the Philippines. These countries have a low unemployment rate because of the characteristics of labor market. In addition, the detrend GDP shows a similar pattern to the time-varying coefficient. This indicates that the negative relationship between the unemployment rate and the output strengthens in the recession period because the economic growth in ASEAN-6 countries highly depends on foreign investment.

Suggested Citation

  • Kim, Jun & Yoon, Jong Cheol & Jei, Sang Young, 2020. "An empirical analysis of Okun’s laws in ASEAN using time-varying parameter model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
  • Handle: RePEc:eee:phsmap:v:540:y:2020:i:c:s0378437119317339
    DOI: 10.1016/j.physa.2019.123068
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    More about this item

    Keywords

    Okun’s law; Emerging countries; Association of South-East Asian Nations (ASEAN); A time-varying coefficient model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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