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Okun’s law revisited. Is there structural unemployment in developed countries?

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  • Kitov, Ivan

Abstract

Okun’s law for the biggest developed countries is re-estimated using the most recent data on real GDP per capita and the rate of unemployment. Our results show that the change in unemployment rate can be predicted with a high accuracy. The link needs the introduction of a structural break which might be caused by the change in monetary policy or/and in measurement units. Statistically, the link between the studied variables is characterized by the coefficient of determination between 0.40 (Australia) and 0.84 (the USA). The residual errors can be associated with measurement errors. The obtained results suggest the absence of structural unemployment in the studied developed countries

Suggested Citation

  • Kitov, Ivan, 2011. "Okun’s law revisited. Is there structural unemployment in developed countries?," MPRA Paper 32135, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32135
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    References listed on IDEAS

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    1. David E. Altig & Terry J. Fitzgerald & Peter Rupert, 1997. "Okun's law revisited: should we worry about low unemployment?," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    2. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    3. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    4. Peter Tillmann, 2010. "Do FOMC members believe in Okun's Law?," Economics Bulletin, AccessEcon, vol. 30(3), pages 2398-2404.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The link between unemployment and real economic growth in the UK. Brits are able to retain data quality and integrity
      by Ivan Kitov in Economics as Classical Mechanics on 2021-01-06 13:33:00
    2. We have validated our model allowing for an accurate prediction of GDP growth using unemployment estimates
      by Ivan Kitov in Economics as Classical Mechanics on 2020-12-27 19:33:00

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    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, pages 77-85.
    2. Patrick Olufemi ADEYEYE & Anthonia T ODELEYE & Olufemi Adewale ALUKO, 2018. "Investigating Okun's Law in Nigeria through the Dynamic Model," Journal of Economics and Behavioral Studies, AMH International, vol. 9(6), pages 39-46.

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    More about this item

    Keywords

    unemployment; GDP; modelling; Okun’s law;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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