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Unemployment and the GNP Gap: Okun's Law Revisited

Author

Listed:
  • Yu Hsing

    (Southeastern Louisiana University)

Abstract

This paper reexamines Okun's law by applying the Box-Cox transformation of variables. Major findings are that the effect of a change in the GNP gap on the unemployment rate varies from -0.280 in 1969.1 to -0.801 in 1982.4; the effect is larger (smaller) when the unemployment rate is higher (lower); and the linear form can be rejected at the 1 percent level. To reduce the unemployment rate by one percentage point in 1982.Q4, the author may overestimate the increase in actual real GNP by as much as $31 billion if an incorrect functional form is chosen.

Suggested Citation

  • Yu Hsing, 1991. "Unemployment and the GNP Gap: Okun's Law Revisited," Eastern Economic Journal, Eastern Economic Association, vol. 17(4), pages 409-416, Oct-Dec.
  • Handle: RePEc:eej:eeconj:v:17:y:1991:i:4:p:409-416
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume17/V17N4P409_416.pdf
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    References listed on IDEAS

    as
    1. Paul D. Thistle & John P. Formby, 1988. "On One Parameter Functional Forms for Lorenz Curves," Eastern Economic Journal, Eastern Economic Association, vol. 14(1), pages 81-85, Jan-Mar.
    2. Seaks, Terry G & Layson, Stephen K, 1983. "Box-Cox Estimation with Standard Econometric Problems," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 160-164, February.
    3. Smyth, David J & Dua, Pami, 1988. "Public Perceptions of Macroeconomic Policy: An Econometric Analysis of the Reagan Presidency," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 357-361, May.
    4. Spitzer, John J, 1982. "A Primer on Box-Cox Estimation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 307-313, May.
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    Cited by:

    1. Lee, Jim, 2000. "The Robustness of Okun's Law: Evidence from OECD Countries," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 331-356, April.
    2. Domicián Máté, 2010. "Estimating Labour Market Performance in Twenty-Three OECD Countries, 1980-2009," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 213-232, December.

    More about this item

    Keywords

    Okun's Law; Unemployment Rate; Unemployment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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