How credible are Okun coefficients? The gap version of Okun’s law for G7 economies

Martin Boďa and Mariana Považanová ()
Additional contact information
Mariana Považanová: Matej Bel University in Banská Bystrica

Economic Change and Restructuring, 2023, vol. 56, issue 3, No 3, 1467-1514

Abstract: Abstract The paper draws attention to the fact that findings that follow from estimation of Okun’s law are extremely sensitive to methodological choices. The argument rests in a case study oriented upon G7 countries for a period 1991/Q1–2021/Q4 and accounts for a possible asymmetry in the output–unemployment relationship. First, business and unemployment fluctuations are estimated by six purely statistical approaches that arise by casting the Hodrick–Prescott filter, the Hamilton filter and the unobserved component model into a univariate or bivariate framework. Second, the gap version of Okun’s law is modelled by means of an auto-regressive distributed lag model or its nonlinear threshold counterpart according as asymmetry is allowed or not. The results indicate huge heterogeneity in Okun coefficients for every country caused by differences even in the basal methodological aspects accounted for in the case study. The diversity of results demonstrates that initial modelling choices may provide economic policy-makers with conflicting insights and advice. This issue follows merely from the absence of general standards that might decide which particular result is more credible.

Keywords: Okun’s law; Gap version; Asymmetry; Hodrick–Prescott filter; Hamilton filter; Unobserved component model; (T)ARDL model (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10644-022-09438-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ecopln:v:56:y:2023:i:3:d:10.1007_s10644-022-09438-9

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/10644/PS2

DOI: 10.1007/s10644-022-09438-9

Access Statistics for this article

Economic Change and Restructuring is currently edited by George Hondroyiannis

More articles in Economic Change and Restructuring from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().