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| Julien Fouquau |
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| ''Threshold effects in Okun's Law: a panel data analysis'' |
| ( 2008, Vol. 5 No.33 ) |
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| Our approach involves the use of switching regime models, to take account of the structural asymmetry and time instability of Okun's coefficient. More precisely, we apply the non-dynamic panel transition regression model introduced by Hansen (1999) to a panel of 20 OECD countries over the last three decades. With all specifications applied, the tests lead to the rejection of the null hypothesis of a linear relationship between cyclical output and cyclical unemployment. The asymmetry implies the existence of four regimes. For lower or higher values of cyclical unemployment, it follows that there is a relatively strong negative correlation between unemployment rate and output. However, when unemployment stands at intermediate levels, this relationship tends to weaken. |
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| Keywords: Threshold Panel Regression Models |
JEL: E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
C2 - Single Equation Models; Single Variables: General |
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| Manuscript Received : Oct 10 2008 | | Manuscript Accepted : Nov 02 2008 |
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