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Is Okun’s Law Valid in Romanian Economy? An Empirical Approach of Unemployment Rate and GDP Relation from 2000 to 2018

Author

Listed:
  • Lipară Daniel

    (“Ovidius†University of Constanţa)

  • Gheorghiu Gabriela

    (“Ovidius†University of Constanţa)

  • Barbu Corina Aurora

    (“Ovidius†University of Constanţa)

Abstract

Economic growth and the level of employment are two key factors that economists should consider when analyzing different economic aspects. In this article, we focus on the relation between the growth of unemployment rate and the growth of real gross domestic product (both expressed as a percentage) in the case of Romania. In our research we answer at the following questions? Is Okun’s rule valid in Romanian economy from 2000 to 2018? Does it hold over time? What is the relation between these variables? The empirical analysis showed the inverse relationship between them, confirming Okun’s findings, underlying that the rule is valid in the Romanian economy in the analyzed period, although the small value of R-squared made us interpret the results with caution, questioning somehow the sustainability of the law over time. Its validity can be seen more on short term analysis rather than on long term projections.

Suggested Citation

  • Lipară Daniel & Gheorghiu Gabriela & Barbu Corina Aurora, 2018. "Is Okun’s Law Valid in Romanian Economy? An Empirical Approach of Unemployment Rate and GDP Relation from 2000 to 2018," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 279-284, December.
    • Handle: RePEc:ovi:oviste:v:xviii:y:2018:i:2:p:279-284
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    References listed on IDEAS

    as
    1. Laurence M. Ball & Daniel Leigh & Prakash Loungani, 2013. "Okun's Law: Fit at Fifty?," NBER Working Papers 18668, National Bureau of Economic Research, Inc.
    2. Ball, Laurence & Jalles, João Tovar & Loungani, Prakash, 2015. "Do forecasters believe in Okun’s Law? An assessment of unemployment and output forecasts," International Journal of Forecasting, Elsevier, vol. 31(1), pages 176-184.
    3. Ana Michaela ANDREI, 2014. "Using asymmetric Okun law and Phillips curve for potential output estimates: an empirical study for Romania," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2014(23), pages 6-18, December.
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    More about this item

    Keywords

    unemployment rate; GDP; Okun’s law; economic growth;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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