Do Structural Breaks exist in Okun’s Law? Evidence from the Lost Decade in Japan

Iiboshi, Hirokuni and Wakita, Shigeru (2004): Do Structural Breaks exist in Okun’s Law? Evidence from the Lost Decade in Japan.

Abstract

This paper presents an analysis as to whether or not there has been a structural break of Okun’s Law, and if so, how many, when and what kind of break, using Bayesian methods via MCMC (Markov Chain Monte Carlo) simulation for the Japanese data from 1961Q1 to 2001Q1. In addition, it identifies structural breaks both in trends (normal level) and cyclical components (normal level), which are ecomposed from output and unemployment rate by new proposed methods as well as widespread methods: H-P filter and Band Pass filter, in contrast to the previous studies of several countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Structural Change Test with Unknown Timing, MCMC, Kalman Filter, Hodrick-Prescott Filter, Band Pass Filter, Bayesian inference
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; 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; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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