The Great Recession and Okun's law

Grant, AL

The Great Recession and Okun's law

Grant, AL

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Publication Type:: Journal Article
Citation:: Economic Modelling, 2018, 69 pp. 291 - 300
Issue Date:: 2018-01-01

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Field	Value	Language
dc.contributor.author	Grant, AL https://orcid.org/0000-0002-6167-6130	en_US
dc.date.issued	2018-01-01	en_US
dc.identifier.citation	Economic Modelling, 2018, 69 pp. 291 - 300	en_US
dc.identifier.issn	0264-9993	en_US
dc.identifier.uri	http://hdl.handle.net/10453/130477
dc.description.abstract	© 2017 Elsevier Ltd The relationship between output and unemployment has been a widely discussed topic since the Great Recession. This paper jointly estimates a time-varying parameter Okun's law with two latent states: potential output and the natural rate of unemployment. It is found that there is substantial time variation in the Okun's coefficient in the US. Since the Great Recession, a given unemployment gap has been associated with a smaller output gap. The probability that the Okun's coefficient is equal to the widely accepted value of −2 fell significantly during the Great Recession, but has since risen despite the Okun's coefficient remaining at around −0.5. This illustrates the significant degree of uncertainty in the estimation of potential output and the natural rate of unemployment.	en_US
dc.relation.ispartof	Economic Modelling	en_US
dc.relation.isbasedon	10.1016/j.econmod.2017.10.002	en_US
dc.subject.classification	Economics	en_US
dc.title	The Great Recession and Okun's law	en_US
dc.type	Journal Article
utslib.citation.volume	69	en_US
utslib.for	1403 Econometrics	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	69	en_US

Abstract:

© 2017 Elsevier Ltd The relationship between output and unemployment has been a widely discussed topic since the Great Recession. This paper jointly estimates a time-varying parameter Okun's law with two latent states: potential output and the natural rate of unemployment. It is found that there is substantial time variation in the Okun's coefficient in the US. Since the Great Recession, a given unemployment gap has been associated with a smaller output gap. The probability that the Okun's coefficient is equal to the widely accepted value of −2 fell significantly during the Great Recession, but has since risen despite the Okun's coefficient remaining at around −0.5. This illustrates the significant degree of uncertainty in the estimation of potential output and the natural rate of unemployment.

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http://hdl.handle.net/10453/130477