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∆ U Α +Β ∆ Logy ∆ Ε Change∈Employment Rate At Period T .: A) Okun'S Law

Okun's Law establishes a negative relationship between changes in a country's unemployment rate and GDP growth. It is modeled as: Change in unemployment = Intercept + Okun Coefficient * Change in GDP growth + Error term. An adjusted version of the law accounts for multiple countries, with changes in unemployment in each country related to that country's GDP growth plus dummy variables for each country.

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60 views1 page

∆ U Α +Β ∆ Logy ∆ Ε Change∈Employment Rate At Period T .: A) Okun'S Law

Okun's Law establishes a negative relationship between changes in a country's unemployment rate and GDP growth. It is modeled as: Change in unemployment = Intercept + Okun Coefficient * Change in GDP growth + Error term. An adjusted version of the law accounts for multiple countries, with changes in unemployment in each country related to that country's GDP growth plus dummy variables for each country.

Uploaded by

ravi_nyse
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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a) Okuns Law

It establishes the relationship between total output of countrys GDP to relative changes
in the unemployment rate or Arthur Okun (1962) stated that there is a negative
relationship between aggregate output and unemployment rate, which was popularly
known as Okuns law.
ut = + log Y t + t
ut =Changeemployment rate at period t .
= Intercept.
= Okun Co-efficient.
Y t =Growth rate of output.
t =Error term .
Adjusted Okuns law in case of more than one country
N

1,i C i+ 2,i C i+ log Y i ,t + t


i=1

ui ,t = +
i=2

ui , t=Changeunemployment country iat year t .


Ci =Dummy variable for country i .
Y i , t=Growth rate for country i .

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