 A strong hysteretic model of Okun's Law: Theory and a preliminary investigationDany Lang and Christian de Peretti Post-Print from HAL Abstract: This paper presents a 'strong hysteretic' version of Okun's Law, that is, a version of the law in which 'history matters.' In this version of the link between fluctuations in unemployment and growth, the most important past growth shock exerts an influence on the current unemployment rate. A theoretical framework is proposed in order to lay the foundations of this version of Okun's Law. In this framework, the hysteresis property arises because a large number of heterogeneous firms discontinuously adjust their activity levels in response to fluctuations in the rate of growth. The foundations having been laid, a method for empirically testing our hysteretic Okun's Law is presented. An algorithm permits construction of a hysteresis operator, which synthesizes, for every moment, the growth shocks that have remained in the memory bank of the unemployment rate. Empirical tests are conducted to assess the empirical relevance of this version of Okun's Law, as compared to the more familiar linear relationship. Empirical results consistent with hysteresis are found for several of the countries in our sample. © 2009 Taylor & Francis. Keywords: Hysteresis; Okun's law; Unemployment fluctuations (search for similar items in EconPapers) Published in International Review of Applied Economics, 2009, 23 (4), pp.445--462. ⟨10.1080/02692170902954775⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02877983 DOI: 10.1080/02692170902954775 Access Statistics for this paper More papers in Post-Print from HAL |
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