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Is There Asymmetry between GDP and Labor Market Variables in Turkey under Okun’s Law?

Author

Listed:
  • Evren Erdogan Cosar
  • Ayse Arzu Yavuz

Abstract

This study examines the long-term relationship in Turkey between Gross Domestic Product (GDP) and two labor market variables, employment and unemployment rate. Markov switching (MS) models are estimated to capture non-linear effects under Okun’s law, using quarterly data for 1989 to 2018. The aim is to determine whether these labor market variables exhibit asymmetric behavior in response to GDP changes. Asymmetric effects determine the course of the recovery in GDP and employment after a crisis, so it is important to determine elasticities among these variables to implement active labor market policies. This study is novel in that we investigate the existence of these asymmetric relationships in the Turkish economy while taking into consideration the expansion and recession phases of both variables. In a MS model with two states being expansion and recession, we find asymmetric relationships between labor market variables and GDP both within and between phases. In addition, labor market variables in Turkey respond more strongly to GDP changes during recessions.

Suggested Citation

  • Evren Erdogan Cosar & Ayse Arzu Yavuz, 2019. "Is There Asymmetry between GDP and Labor Market Variables in Turkey under Okun’s Law?," Working Papers 1927, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1927
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2019/19-27
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    More about this item

    Keywords

    Okun’s law; Markov-switching models; Asymmetry; Turkey;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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

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