Asymmetric Adjustment of Unemployment and Output in New Zealand: Rediscovering Okun's Law

Richard Harris () and Brian Silverstone

Working Papers in Economics from University of Waikato

Abstract: Okun's law - the relationship between unemployment and output - is one of the best known empirical regularities in macroeconomics. It is an important relationship because the way in which unemployment reacts to changes in output has implications for labour market and monetary policies and for forecasting. Most specifications of Okun's law assume a symmetric relationship: expansions and contractions in output have the same absolute effect on unemployment. In this paper, we test this assumption against the alternative view that the relationship is asymmetric. We use New Zealand data from 1978 to 1999 and contemporary econometric techniques including asymmetric modelling. Our main finding is that changes in unemployment and output in New Zealand are related in both the long run and the short run but only if an asymmetric approach is taken.

Keywords: Okun's law; asymmetric modelling; unemployment and output; New Zealand (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2000-05-01
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:00/02

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