Unemployment and the GNP Gap: Okun's Law Revisited
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.
Volume (Year): 17 (1991)
Issue (Month): 4 (Oct-Dec)
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- Spitzer, John J, 1982. "A Primer on Box-Cox Estimation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 307-13, May.
- 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.
- 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 160-64, February.
- 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 357-61, May.
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