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Does Output Predict Unemployment? A Look at Okun’s Law in Greece

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Abstract

This paper examines the unemployment-output relationship in Greece, using a dynamic version of Okun’s Law. The Granger causality tests indicate that real output is important to understanding future movements in unemployment. The Okun’s ratio is 3-to-1, implying that one percent increase in unemployment has been associated to a three percent decrease in real output during the last thirteen years. In addition, the response of unemployment to real output is found to be stronger when there is a contraction rather than an expansion of real activity. This empirical fact is consistent with the developments of the Beveridge curve, which illustrate that a significant portion of actual unemployment is structural in nature. Therefore, a fall in unemployment will require not only a pick-up in aggregate demand but also structural reforms in the Greek labour market, which will make the economy competitive and reduce long-term unemployment.

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  • Costas Karfakis & Konstantinos Katrakilidis & Eftychia Tsanana, 2013. "Does Output Predict Unemployment? A Look at Okun’s Law in Greece," Discussion Paper Series 2013_01, Department of Economics, University of Macedonia, revised Dec 2013.
  • Handle: RePEc:mcd:mcddps:2013_01
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    1. repec:eee:joecas:v:13:y:2016:i:c:p:81-88 is not listed on IDEAS
    2. Costas KARFAKIS & Constantinos KATRAKILIDIS & Eftychia TSANANA, 2014. "Does output predict unemployment? A look at Okun's law in Greece," International Labour Review, International Labour Organization, vol. 153(3), pages 421-433, September.
    3. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-015-9351-5 is not listed on IDEAS
    4. Miquel Clar-Lopez & Jordi López-Tamayo & Raúl Ramos, 2014. "Unemployment forecasts, time varying coefficient models and the Okun’s law in Spanish regions," Economics and Business Letters, Oviedo University Press, vol. 3(4), pages 247-262.
    5. Muhammad Azam & Faisal Khan & Khalid Zaman & Amran Md. Rasli, 2016. "Military Expenditures and Unemployment Nexus for Selected South Asian Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(3), pages 1103-1117, July.

    More about this item

    Keywords

    Okun’s Law; real output; unemployment; business cycles; Beveridge curve; VAR model; Granger causality.;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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