Okun’s Law (A)Symmetry in SEE Countries: Evidence from Nonlinear ARDL Model

Vladimir Mihajlović () and Aleksandra Fedajev ()
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Vladimir Mihajlović: University of Kragujevac, Faculty of Economics, Kragujevac, Serbia. Corresponding Author.
Aleksandra Fedajev: University of Belgrade, Technical Faculty in Bor. Bor, Serbia.

Journal for Economic Forecasting, 2021, issue 3, 140-157

Abstract: Despite relatively strong output growth in recent years, unemployment in many South- eastern European (SEE) countries remains high and persistent. The common assumption of Okun’s law symmetry, i.e., that expansions and contractions in output exert the same absolute effect on unemployment, could hardly offer any additional knowledge about this poor employment content of economic growth. Therefore, this study focuses on asymmetric effects in the unemployment-output relationship in SEE countries and its policy implications, employing a nonlinear ARDL approach (NARDL). The results reveal Okun’s law asymmetry (either long-run or short-run) in five out of eight observed countries, indicating unemployment reaction is more pronounced in economic downswings than in upswings. Further analysis confirms that identifying the correct inherent characteristics of the unemployment-output trade-off could be useful for both structural policies (e.g., labor market reforms) and stabilization policies, especially in SEE transition economies.

Keywords: unemployment-output trade-off; asymmetry; NARDL model; dynamic multipliers; labour market; SEE countries (search for similar items in EconPapers)
JEL-codes: B41 C32 E32 J64 (search for similar items in EconPapers)
Date: 2021
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