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Empirical Estimates of Okun¡¯s Law in Malta

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  • Brian Micallef

Abstract

This study presents various empirical estimates of Okun¡¯s Law in Malta for the period 2000-2016. A better understanding of Okun¡¯s relationship is important for the design of macroeconomic policies as well as for forecasting purposes. In Malta, the relationship between output and unemployment is relatively weak compared to other European countries. Among the demand components, unemployment is most sensitive to private consumption and exports. The relationship is also asymmetric, with the response of unemployment to output tending to be more pronounced during recessions. Stability tests suggest that Okun¡¯s relationship is not stable, although the link has become more pronounced in recent years, while the unemployment rate consistent with full employment has been on a downward trend. Estimates from an unobserved components model suggests that Okun¡¯s Law is quite robust at cyclical frequency, with potential time-variation in the relationship being ascribed to the trend components.

Suggested Citation

  • Brian Micallef, 2017. "Empirical Estimates of Okun¡¯s Law in Malta," Applied Economics and Finance, Redfame publishing, vol. 4(1), pages 138-148, January.
    • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:1:p:138-148
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    References listed on IDEAS

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    1. Brian Micallef, 2016. "A Multivariate Filter to Estimate Potential Output and NAIRU for the Maltese Economy," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(5), pages 13-22, May.
    2. Karel Havik & Kieran Mc Morrow & Fabrice Orlandi & Christophe Planas & Rafal Raciborski & Werner Roeger & Alessandro Rossi & Anna Thum-Thysen & Valerie Vandermeulen, 2014. "The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps," European Economy - Economic Papers 2008 - 2015 535, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    4. Blanchard, Oliver & Cerutti, Eugenio & SUmmers, Lawrence, 2015. "Inflation and Activity - Two Explorations and Their Monetary Policy Implications," Working Paper Series 15-070, Harvard University, John F. Kennedy School of Government.
    5. Lafourcade, Pierre & Gerali, Andrea & Brůha, Jan & Bursian, Dirk & Buss, Ginters & Corbo, Vesna & Haavio, Markus & Håkanson, Christina & Hlédik, Tibor & Kátay, Gábor & Kulikov, Dmitry & Lozej, Matija , 2016. "Labour market modelling in the light of the financial crisis," Occasional Paper Series 175, European Central Bank.
    6. Igor Ermolaev & Michel Juillard & Ioan Carabenciov & Charles Freedman & Mr. Douglas Laxton & Mr. Ondrej Kamenik & Dmitry Korshunov, 2008. "A Small Quarterly Projection Model of the US Economy," IMF Working Papers 2008/278, International Monetary Fund.
    7. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    8. Francesca D'Auria & Cécile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 2008 - 2015 420, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Grech, Aaron George & Micallef, Brian, 2014. "Assessing the supply of the Maltese economy using a production function approach," MPRA Paper 53882, University Library of Munich, Germany.
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    Cited by:

    1. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    2. Mindaugas Butkus & Kristina Matuzeviciute & Dovile Rupliene & Janina Seputiene, 2020. "Does Unemployment Responsiveness to Output Change Depend on Age, Gender, Education, and the Phase of the Business Cycle?," Economies, MDPI, vol. 8(4), pages 1-29, November.
    3. Brian Micallef, "undated". "The process of economic convergence in Malta and in the European Union," CBM Policy Papers PP/02/2017, Central Bank of Malta.
    4. Brian Micallef, 2017. "A Sectoral Supply-Side Model to Assess the Impact of Labour Market Reforms in Malta," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 105-118, April.
    5. Brian Micallef, 2018. "Estimating the Impact of Structural Reforms to Increase the Female Participation Rate in Malta," International Journal of Social Science Studies, Redfame publishing, vol. 6(8), pages 73-84, August.

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    More about this item

    Keywords

    Okun¡¯s Law; asymmetry; time-variation; NAIRU; Malta;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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