Cross-country Evidence on a Nonlinear Okun Curve

Matti Virén

No 239, Discussion Papers from VATT Institute for Economic Research

Abstract: This paper presents cross-country evidence on a nonlinear Okun curve. The analysis is based on a simple error-correction model of unemployment. The model is estimated using a threshold model estimator. Evidence from 20 OECD countries for 1960-1997 gives support for the existence of nonlinearities in terms of the output growth effects. Output growth has a strong effect on unemployment when unemployment is low and output is high, and vice versa. Thus, in bad times, the effect of output growth on unemployment can be close to zero. In addition to this nonlinear output effect, also the population growth effect appears to be of similar type. The above mentioned basic results turn out to be robust in terms of estimation method (single equation vs pooled data estimation) and specification of the threshold variable.

Keywords: Unemployment; population shocks; threshold models; Labour market; Työmarkkinat; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot; J210 - Labor Force and Employment; Size; and Structure (by industry; occupation; demographic characteristics; etc.) (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:fer:dpaper:239

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