Does Output Predict Unemployment? A Look at Okun’s Law in Greece

Costas Karfakis, Constantinos Katrakilidis and Eftychia Tsanana (etsanana@econ.auth.gr)
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Eftychia Tsanana: Department of Economics, Aristotle University

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper examines the unemployment-output relationship in Greece, using a dynamic version of Okun’s Law. The Granger causality tests indicate that real output is important to understanding future movements in unemployment. The Okun’s ratio is 3-to-1, implying that one percent increase in unemployment has been associated to a three percent decrease in real output during the last thirteen years. In addition, the response of unemployment to real output is found to be stronger when there is a contraction rather than an expansion of real activity. This empirical fact is consistent with the developments of the Beveridge curve, which illustrate that a significant portion of actual unemployment is structural in nature. Therefore, a fall in unemployment will require not only a pick-up in aggregate demand but also structural reforms in the Greek labour market, which will make the economy competitive and reduce long-term unemployment.

Keywords: Okun’s Law; real output; unemployment; business cycles; Beveridge curve; VAR model; Granger causality. (search for similar items in EconPapers)
JEL-codes: E24 E32 E37 (search for similar items in EconPapers)
Date: 2013-12, Revised 2013-12
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (4)

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Journal Article: Does output predict unemployment? A look at Okun's law in Greece (2014)
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