IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02877983.html

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

Author

Listed:
  • Dany Lang
  • Christian de Peretti

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

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. © 2009 Taylor & Francis.

Suggested Citation

  • Dany Lang & Christian de Peretti, 2009. "A strong hysteretic model of Okun's Law: Theory and a preliminary investigation," Post-Print hal-02877983, HAL.
    • Handle: RePEc:hal:journl:hal-02877983
    DOI: 10.1080/02692170902954775
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    Other versions of this item:

    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 and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 119, 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. Koutroulis, Aristotelis & Panagopoulos, Yannis & Tsouma, Ekaterini, 2016. "Asymmetry in the response of unemployment to output changes in Greece: Evidence from hidden co-integration," The Journal of Economic Asymmetries, Elsevier, vol. 13(C), pages 81-88.
    4. Paulo R. Mota & Paulo B. Vasconcelos, 2018. "Does the Deregulation of the Labour Market Reduce Employment Hysteresis? An Analysis in a Low Interest Rate Environment," FEP Working Papers 611, Universidade do Porto, Faculdade de Economia do Porto.
    5. Kavese Kambale & Phiri Andrew, 2020. "A Provincial Perspective of Nonlinear Okun’s Law for Emerging Markets: The Case of South Africa," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 59-76, September.
    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 and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(3), pages 98-102.
    8. Váry, Miklós, 2018. "A hiszterézis közgazdasági jelentőségéről posztkeynesi szemléletben [The economic relevance of hysteresis from a post-Keynesian perspective]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1006-1047.
    9. Paulo R. Mota & Abel L. C. Fernandes & Paulo B. Vasconcelos, 2018. "Employment Hysteresis: An Argument For Avoiding Front-Loaded Fiscal Consolidations In The Eurozone," FEP Working Papers 610, Universidade do Porto, Faculdade de Economia do Porto.
    10. Christian Peretti, 2007. "Long Memory and Hysteresis," Springer Books, in: Gilles Teyssière & Alan P. Kirman (ed.), Long Memory in Economics, pages 363-389, Springer.
    11. Phiri, Andrew, 2014. "Re-evaluating Okun's law in South Africa: A nonlinear co-integration approach," MPRA Paper 57398, University Library of Munich, Germany.
    12. Federico Bassi, 2016. "Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model," Review of Political Economy, Taylor & Francis Journals, vol. 28(3), pages 313-335, July.
    13. Andrew Phiri, 2019. "Fitting Okun's law for the Swazi Kingdom: Will a nonlinear specification do?," Economics Bulletin, AccessEcon, vol. 39(2), pages 1371-1383.
    14. 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.
    15. 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.
    16. Dany Lang & Mark Setterfield, 2012. "Faith-based Macroeconomics: A Critique of Recent Developments in NAIRU Estimation," Chapters, in: Claude Gnos & Louis-Philippe Rochon & Domenica Tropeano (ed.), Employment, Growth and Development, chapter 5, Edward Elgar Publishing.
    17. Camarero Mariam & Sapena Juan & Tamarit Cecilio, 2025. "Introducing sspaneltvp: A Code to Estimating State-Space Time-Varying Parameter Models in Panels. An Application to Okun’s Law," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 29(4), pages 511-539.
    18. Bassi, Federico & Lang, Dany, 2016. "Investment hysteresis and potential output: A post-Keynesian–Kaleckian agent-based approach," Economic Modelling, Elsevier, vol. 52(PA), pages 35-49.
    19. 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.
    20. 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.
    21. Şule Akkoyunlu, 2024. "Testing Okun’s Law for Turkey (1923-2019)," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 48(2), pages 113-132, April.
    22. Lal, Irfan & Mohammad, Sulaiman D. & Hussain, Adnan & Jalil, Anwar, 2012. "Test of Okun’s Law in Some Asian Countries Co-Integration Approach," MPRA Paper 106934, University Library of Munich, Germany.
    23. 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.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:hal:journl:hal-02877983. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.