Disaggregating Okun’s Law: A Case-Study for Macedonia

Open access

Abstract

Okun’s law is one of the most widely-known stylized facts in the macroeconomic literature and policy. In this paper we study several aspects of Okun’s law in Macedonia between 2004 and 2016. Aggregate indicators show a link between output and unemployment that is in line with other emerging markets and regional peers. We also find that the relationship has been somewhat weaker in recent years, which might be related to the recent job-intensive growth in the wake of structural reforms after the global financial crisis and particularly the subsequent European debt crisis. When investigating whether various expenditure components of GDP may cause different unemployment reactions, an important issue that has not been sufficiently addressed in the literature, we find that domestic demand has a stronger effect. We also provide several robustness checks to our main findings, and illustrate how they might be used to improve forecasting.

1. Anderton, R., Aranki, T., Bonthuis, B. and Jarvis, V. (2014). Disaggregating Okun’s Law: Decomposing the Impact of the Expenditure Components of GDP on Euro Area Unemployment. ECB Working Paper No. 1747.

2. Ball, L., Leigh, D. and Loungani, P. (2013). Okun’s Law: Fit at Fifty. IMF Working Paper WP/13/10.

3. Bašić Vasiljev, T. (2018). Estimated DSGE Model for Monetary and Fiscal Policy Coordination Analysis – The Case of Serbia. Journal of Central Banking Theory and Practice, 2018, 1, pp. 145-173.

4. Daly, M. C., Fernald, J., Jordà O. and Nechio, F. (2014). Interpreting Deviations from Okun’s Law. Federal Reserve Bank of San Francisco, FRBSF Economic Letter 2014-12, April 21, 2014.

5. Ebeke, C. and Everaert, G. (2014). Unemployment and Structural Unemployment in the Baltics. IMF Working Paper WP/14/153.

6. ECB. (2012a). Euro Area Labour Markets and the Crisis. ECB Structural Issues Report, October 2012.

7. ECB. (2012b). “Recent Developments in the Okun Relationship in the Euro Area”. ECB Monthly Bulletin, July 2012, Box 3.

8. Hlédik, T., Bojceva Terzijan S., Jovanovic B. and Kabashi R. (2016). Overview of the Macedonian Policy Analysis Model (MAKPAM). National bank of the Republic of Macedonia Working Paper.

9. IMF. (2010). “Unemployment Dynamics in Recessions and Recoveries: Okun’s law and Beyond”. World Economic Outlook, April 2010, Chapter 3.

10. IMF. (2012). “Jobs and Growth: Can’t Have One without the Other?”. World Economic Outlook, October 2012, Chapter 4, Box 4.1.

11. IMF. (2013). Will Structural Transformation Allow Labor Market Convergence? Republic of Macedonia: Selected Issues Paper, IMF Country Report No. 13/179, pp. 3-15.

12. Knotek, E.S. (2007). How Useful Is Okun’s Law? Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter 2007, pp. 73-103.

13. Kovtun, D., Cirkel, A. M., Murgasova Z., Smith, D. and Tambunlertchai, S. (2014). Boosting Job Growth in the Western Balkans. IMF Working Paper WP/14/16.

14. McKinsey Global Institute. (2011). An Economy That Works: Job Creation and America’s Future. June 2011 Report.

15. Okun, A.M. (1962). Potential GNP: Its Measurement and Significance. Proceedings of the Business and Economics Statistics Section of the American Statistical Association, pp. 98–104.

16. Owyang, T.M. and Sekhposyan, T. (2012). Okun’s Law over the Business Cycle: Was the Great Recession All That Different? Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis Review, September/October 2012, 94(5), pp. 399-418.

17. Pesliakaitė, J. (2015). The Impact of GDP Structure on the Stability of Okun’s Law in Lithuania. Bank of Lithuania Academic Journal “Monetary Studies” 2015/2, pp.88-94.

18. Petkov, B. (2008). The Labour Market and Output in the UK – Does Okun’s Law Still Stand? Bulgarian National Bank Discussion Paper DP/69/2008.

19. Petrovska, M., Krstevska, A., and Naumovski, N. (2016). Forecasting Macedonian Business Cycle Turning Points Using Qual Var Model. Journal of Central Banking Theory and Practice, 2016, 3, pp. 61-78.

20. Poghosyan, K. (2016). A Comparison of Different Short-Term Macroeconomic Forecasting Models: Evidence from Armenia. Journal of Central Banking Theory and Practice, 2016, 2, pp. 81-99.

Journal Information


CiteScore 2017: 0.43

SCImago Journal Rank (SJR) 2017: 0.284
Source Normalized Impact per Paper (SNIP) 2017: 0.910

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 59 59 59
PDF Downloads 61 61 61