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

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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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File URL: http://aphrodite.uom.gr/econwp/pdf/dp012013.pdf
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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2013_01.

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Date of creation: Dec 2013
Date of revision: Dec 2013
Handle: RePEc:mcd:mcddps:2013_01
Contact details of provider: Web page: http://www.uom.gr/index.php?tmima=3

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  1. Owyang, Michael T. & Sekhposyan, Tatevik, 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.
  2. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
  3. Paramsothy Silvapulle & Imad Moosa & Mervyn Silvapulle, 2004. "Asymmetry in Okun's law," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 353-374, May.
  4. Kaufman, Roger T., 1988. "An international comparison of Okun's laws," Journal of Comparative Economics, Elsevier, vol. 12(2), pages 182-203, June.
  5. Prachowny, Martin F J, 1993. "Okun's Law: Theoretical Foundations and Revised Estimates," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 331-336, May.
  6. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
  7. Lee, Jim, 2000. "The Robustness of Okun's Law: Evidence from OECD Countries," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 331-356, April.
  8. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
  9. Mary C. Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
  10. Brian Silverstone & Richard Harris, 2001. "Testing for asymmetry in Okun's law: A cross-country comparison," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-13.
  11. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
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