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Revisiting Okun’s law for Europe

Author

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  • Tarkan Çavuşoğlu

    (Hacettepe University/Department of Public Finance)

Abstract

Okun’s law is considered a crucial empirical relationship in macroeconomics. This study revisits Okun's relation for a number of European countries over the 1965-2014 period. The main motivation behind the study is the lack of unanimity in the literature in modelling the direction of the systematic opposite movements of the unemployment rate and output. While a strand of the literature treats changes in unemployment rates as the outcome of aggregate demand fluctuations, another strand relates unemployment to output through a production-function approach, where fluctuations in labour -particularly unemployment- capital, and technology are modelled to explain fluctuations in output. Accordingly, this study revisits the Okun’s law by empirically questioning the model specification of the unemployment-output relationship. The relevant statistical evidence is obtained through exploiting recent panel data estimation techniques of instrumental variable estimations and vector autoregression analyses.

Suggested Citation

  • Tarkan Çavuşoğlu, 2015. "Revisiting Okun’s law for Europe," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 248, Ekonomik Yaklasim Association.
    • Handle: RePEc:eyd:cp2015:248
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    More about this item

    Keywords

    Okun’s Law; Unemployment; Panel Data.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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