The Validity of Okun’s Coefficient in Pakistan: A Time Series Analysis

Farah Arif
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Farah Arif: Department of Economics, Shaheed Benazir Bhutto Women University, Peshawar, Pakistan.

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Abstract: The output – unemployment relationship was postulated by Arthur Okun in the beginning of 1960's, known as Okun's law. This study specifically contributes to the literature in Pakistan by estimating the production function version of Okun's law using annual time series data over the period of 1973 to 2017 and generally helps in selecting a suitable test method for time series data. Linear regression and time series predictive models are used for the analysis to compare their predictive ability and analyze their performance to choose the best. The performance analysis shows that the time series forecasting model provides more efficient results as compared to the linear regression model. The empirical evidence suggests that Okun's law holds its validity in the long run as well as in the short run in Pakistan. Thus, a decrease in economic output could lead to increase in unemployment, but unemployment has a less impact on real gross domestic product (GDP) for the case of Pakistan as compared to Okun's coefficient benchmark.

Date: 2020-11-03
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Published in Asian Journal of Economics, Finance and Management , 2020, 2 (1), pp.258-276

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05299340

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