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

Author

Listed:
  • Danica Unevska Andonova

    (National Bank of the Republic of Macedonia, Skopje, Macedonia)

  • Magdalena Petrovska

    (National Bank of the Republic of Macedonia, Skopje, Macedonia)

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.

Suggested Citation

  • Danica Unevska Andonova & Magdalena Petrovska, 2019. "Disaggregating Okun’s Law: A Case-Study for Macedonia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(1), pages 183-207.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:1:p:183-207
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    Citations

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    Cited by:

    1. Thomas Obst, 2022. "Dynamic version of Okun’s law in the EU15 countries—The role of delays in the unemployment‐output nexus," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(2), pages 225-241, May.

    More about this item

    Keywords

    Disaggregated Okun’s law; unemployment; expenditure components of GDP;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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