A New Framework for Output-Unemployment Relationship: Okun’s Law Revisited

Ismihan, Mustafa (2010): A New Framework for Output-Unemployment Relationship: Okun’s Law Revisited.

Abstract

This paper provides a new and useful framework for developing various models to investigate the output-unemployment relationship. By using this framework, a simple but reasonable theoretical background to Okun’s law is derived. This theoretical background, in turn, facilitates the decomposition of Okun’s law coefficient into several quantifiable and interpretable components that incorporate main insights from Arthur Okun’s original analysis. The empirical decomposition exercise indicates that Okun’s law has an inherent tendency to vary substantially over time, especially, in response to the structural changes in legal, institutional and other related characteristics of labor and goods markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: output-unemployment relationship; Okun’s law
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables

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