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Revisiting Okun's law for Mexico: an analysis of the permanent and transitory components of unemployment and output

Author

Listed:
  • Islas-Camargo, Alejandro
  • Cortez, Willy W.

Abstract

Unlike usual estimation techniques, we follow Clark (1989) to estimate the correlation between the transitory components of unemployment and output as part of a system of correlations between the permanent and transitory components of both series. This model provides better estimate of the Okun’s Law and it takes into account the correlations that arise between the permanent and transitory components of unemployment and output within each series and across series. We find that the Okun’s coefficient for Mexican economy is significantly lower than previous estimates.

Suggested Citation

  • Islas-Camargo, Alejandro & Cortez, Willy W., 2011. "Revisiting Okun's law for Mexico: an analysis of the permanent and transitory components of unemployment and output," MPRA Paper 30026, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30026
    as

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    File URL: https://mpra.ub.uni-muenchen.de/30026/1/MPRA_paper_30026.pdf
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    References listed on IDEAS

    as
    1. Alcaraz Carlo, 2009. "Informal and Formal Labour Flexibility in Mexico," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
    2. 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.
    3. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 797-814.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    unobserved components; business cycles; labor market; Mexican economy;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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