IDEAS home Printed from https://ideas.repec.org/a/taf/irapec/v23y2009i4p445-462.html
   My bibliography  Save this article

A strong hysteretic model of Okun's Law: theory and a preliminary investigation

Author

Listed:
  • Dany Lang
  • Christian de Peretti

Abstract

This paper presents a 'strong hysteretic' version of Okun's Law, that is, a version of the law in which 'history matters.' In this version of the link between fluctuations in unemployment and growth, the most important past growth shock exerts an influence on the current unemployment rate. A theoretical framework is proposed in order to lay the foundations of this version of Okun's Law. In this framework, the hysteresis property arises because a large number of heterogeneous firms discontinuously adjust their activity levels in response to fluctuations in the rate of growth. The foundations having been laid, a method for empirically testing our hysteretic Okun's Law is presented. An algorithm permits construction of a hysteresis operator, which synthesizes, for every moment, the growth shocks that have remained in the memory bank of the unemployment rate. Empirical tests are conducted to assess the empirical relevance of this version of Okun's Law, as compared to the more familiar linear relationship. Empirical results consistent with hysteresis are found for several of the countries in our sample.

Suggested Citation

  • Dany Lang & Christian de Peretti, 2009. "A strong hysteretic model of Okun's Law: theory and a preliminary investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(4), pages 445-462.
  • Handle: RePEc:taf:irapec:v:23:y:2009:i:4:p:445-462
    DOI: 10.1080/02692170902954775
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/02692170902954775
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cross,Rod Preface by-Name:Blanchard,Olivier (ed.), 1995. "The Natural Rate of Unemployment," Cambridge Books, Cambridge University Press, number 9780521483308, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Roger, Perman & Gaetan, Stephan & Christophe, Tavéra, 2013. "Okun’s law – A meta analysis," SIRE Discussion Papers 2013-59, Scottish Institute for Research in Economics (SIRE).
    3. repec:eee:joecas:v:13:y:2016:i:c:p:81-88 is not listed on IDEAS
    4. Clévenot, Mickaël, 2011. "Post-keynésianisme et théorie de la régulation : des perspectives communes," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 10.
    5. Kambale Kavese & Andrew Phiri, 2018. "A provincial perspective of nonlinear Okun's law for emerging markets: The case of South Africa," Working Papers 1819, Department of Economics, Nelson Mandela University.
    6. Roger Perman & Gaetan Stephan & Christophe Tavéra, 2015. "Okun's Law—a Meta-analysis," Manchester School, University of Manchester, vol. 83(1), pages 101-126, January.
    7. Kargı, Bilal, 2014. "The Data of Labor Market in Turkey and Time Series Analysis on Economic Growth (2000:01-2013:03)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 98-102.
    8. Phiri, Andrew, 2014. "Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach," MPRA Paper 57398, University Library of Munich, Germany.
    9. Asensio, Angel & Charles, Sébastien & Lang, Dany & Le Heron, Edwin, 2011. "Les développements récents de la macroéconomie post-keynésienne," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 10.
    10. Angel Asensio & Dany Lang & Sébastien Charles, 2012. "Post Keynesian modeling: where are we, and where are we going to?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(3), pages 393-412.
    11. Giorgio Canarella & Stephen M. Miller, 2017. "Did Okun’s law die after the Great Recession?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(4), pages 216-226, October.
    12. Dany Lang & Mark Setterfield, 2012. "Faith-based Macroeconomics: A Critique of Recent Developments in NAIRU Estimation," Chapters,in: Employment, Growth and Development, chapter 5 Edward Elgar Publishing.
    13. Albers, Scott, 2013. "Okun’s Law as a Pi-to-1 ratio: A harmonic / trigonometric theory as to why Okun’s Law works," MPRA Paper 46633, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:irapec:v:23:y:2009:i:4:p:445-462. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CIRA20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.