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Stability of Okun's Law in a Codependent System

Author

Listed:
  • Candelon, Bertrand C.B.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Hecq, Alain W.J.

    (University of Limburg, Department of Quantitative Economics, Maastricht)

Abstract

In this paper, we question the stability of Okun's law, i.e. the empirical regularity that seems to hold between economic activity and unemployment. To this aim, we propose to build two complementary indicators of real rigidity, using the codependence methodology. The first one is a recursive estimation of Okun's coefficient, and the second one is a measure of persistence defined by the dimension of the dynamic structure. For the sample of OECD countries that we considered, it appears that only two of them (Italy and Belgium) present a high degree of such rigidities. The recursive analysis proves that all countries tend to be more flexible, confirming the movement towards more flexible labor markets. This analysis provides powerful tools for a better understanding of the dynamics within Okun's law.

Suggested Citation

  • Candelon, Bertrand C.B. & Hecq, Alain W.J., 1998. "Stability of Okun's Law in a Codependent System," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998016, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:1998016
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    Citations

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    Cited by:

    1. Carrasco-Gutierrez, Carlos Enrique & Reis Gomes, Fábio Augusto, 2007. "Evidence on Common Feature and Business Cycle Synchronization in Mercosur," MPRA Paper 66064, University Library of Munich, Germany, revised 2009.
    2. Guillén, Osmani Teixeira & Hecq, Alain & Issler, João Victor & Saraiva, Diogo, 2015. "Forecasting multivariate time series under present-value model short- and long-run co-movement restrictions," International Journal of Forecasting, Elsevier, vol. 31(3), pages 862-875.
    3. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2000. "Testing for Common Cyclical Features in Nonstationary Panel Data Models," CESifo Working Paper Series 248, CESifo Group Munich.
    4. Michel Beine & Bertrand Candelon & Alain Hecq, 2000. "Assessing a Perfect European Optimum Currency Area: A Common Cycles Approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(2), pages 115-132, June.
    5. Carlos Enrique Carrasco Gutierrez & Fábio Augusto Reis Gomes, 2006. "Evidence About Mercosur’S Business Cycle," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 179, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Ian H.K. Leow, 2004. "A Simple Dynamic Model of Big-push," Econometric Society 2004 Australasian Meetings 218, Econometric Society.
    7. repec:sbe:breart:v:29:y:2009:i:1:a:2695 is not listed on IDEAS

    More about this item

    Keywords

    codependence; Okun's Law; GMM; Recursive Estimates;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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