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Okun's law in panels of countries and states

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  • Ho-Chuan (River) Huang
  • Chih-Chuan Yeh

Abstract

This article contributes to the empirical literature of Okun's law in three respects. First, in contrast to the limited data used in the existing studies, we employ two extensive (across countries and across states, i.e. within a country) panel data sets to investigate the validity of Okun's law. Second, the use of the Pooled Mean Group (PMG) estimator permits us not to pre-filter the data as often done in the current literature, and can take into account the possibility of cointegration between unemployment and output. Third, in addition to the short-run relationship or cyclical components between unemployment and output, we also estimate the long-run linkage between these two important variables. Empirical results show that unemployment and output are long-run cointegrated, irrespective of using country- or state-level data. Moreover, the unemployment-output linkages are found to be negative and highly significant both in the short- and long-run. Our results not only confirm the validity of Okun's law (in the short-run) but also point out that a similar tradeoff exists in the long run.

Suggested Citation

  • Ho-Chuan (River) Huang & Chih-Chuan Yeh, 2013. "Okun's law in panels of countries and states," Applied Economics, Taylor & Francis Journals, vol. 45(2), pages 191-199, January.
  • Handle: RePEc:taf:applec:45:y:2013:i:2:p:191-199
    DOI: 10.1080/00036846.2011.597725
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    Citations

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    Cited by:

    1. KARGI, Bilal, 2014. "Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 77-85.
    2. Ryan W Herzog, 2013. "An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States," Economics Bulletin, AccessEcon, vol. 33(4), pages 2504-2517.
    3. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    4. repec:spr:jbuscr:v:13:y:2017:i:2:d:10.1007_s41549-017-0018-5 is not listed on IDEAS
    5. Vadim Kufenko & Niels Geiger, 2017. "Stylized Facts of the Business Cycle: Universal Phenomenon, or Institutionally Determined?," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(2), pages 165-187, November.
    6. Stefan Marth, 2015. "How strong is the correlation between unemployment and growth really? The persistence of Okun's Law and how to weaken it," WWWforEurope Policy Paper series 23, WWWforEurope.

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