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Examining the Stability of Okun’s Coefficient

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  • Nektarios A. Michail

    (Central Bank of Cyprus)

Abstract

The stability of Okun’s coefficient in the US from 1949 to 2015 is examined using a GARCH model in order to capture the volatility in the series. Once the volatility is taken into account, rolling estimations suggest that the coefficient for the unemployment rate is very stable across time, irrespective of the specification (gap or growth model) or the length of the window. In addition, the results suggest that short-term shocks were more important to output fluctuations during the 1970s stagflation period while long-term shocks were significant only when data from the recent global financial crisis were incorporated.

Suggested Citation

  • Nektarios A. Michail, 2015. "Examining the Stability of Okun’s Coefficient," Working Papers 2015-2, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2015-2
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    References listed on IDEAS

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    1. Ball, Laurence & Jalles, João Tovar & Loungani, Prakash, 2015. "Do forecasters believe in Okun’s Law? An assessment of unemployment and output forecasts," International Journal of Forecasting, Elsevier, vol. 31(1), pages 176-184.
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    4. Holmes, Mark J. & Silverstone, Brian, 2006. "Okun's law, asymmetries and jobless recoveries in the United States: A Markov-switching approach," Economics Letters, Elsevier, vol. 92(2), pages 293-299, August.
    5. Nicholas Apergis & Anthony Rezitis, 2003. "An examination of Okun's law: evidence from regional areas in Greece," Applied Economics, Taylor & Francis Journals, vol. 35(10), pages 1147-1151.
    6. Soosung Hwang & Pedro L. Valls Pereira, 2006. "Small sample properties of GARCH estimates and persistence," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 473-494.
    7. Valadkhani, Abbas & Smyth, Russell, 2015. "Switching and asymmetric behaviour of the Okun coefficient in the US: Evidence for the 1948–2015 period," Economic Modelling, Elsevier, vol. 50(C), pages 281-290.
    8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    9. Michael T. Owyang & Tatevik Sekhposyan, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
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    12. Michelle L. Barnes & Fabia Gumbau-Brisa & Giovanni P. Olivei, 2013. "Do real-time Okun's law errors predict GDP data revisions?," Working Papers 13-3, Federal Reserve Bank of Boston.
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    Cited by:

    1. Shabir Mohsin Hashmi & Ali Gul Khushik & Muhammad Akram Gilal & Zhao Yongliang, 2021. "The Impact of GDP and Its Expenditure Components on Unemployment Within BRICS Countries: Evidence of Okun’s Law From Aggregate and Disaggregated Approaches," SAGE Open, , vol. 11(2), pages 21582440211, June.
    2. Nektarios A. Michail & Christos S. Savva, 2021. "Public Debt Thresholds: An Analysis for Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 15(1), pages 75-85, June.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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