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Empirical Evidences Regarding Okun's Law in the Central and Eastern Europe in the Post – Financial Crisis Period

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  • Andreescu Francesca Dana

    (Bucharest University of Economic Studies, Bucharest, Romania)

Abstract

Numerous studies have been conducted based on Okun’s Law (1962), researchers proposing various approaches, while the two most common are the difference approach, which reflects the link between the variation of unemployment rate and the output growth, and the gap approach, which shows the relationship between the deviation of the actual unemployment rate from the natural unemployment rate and the Gross Domestic Product (GDP) gap. In order to see how the relationship looks like over time and how the Okun’s coefficient varies from country to country, this study analyzes the sensitivity of unemployment at output changes while carries out a comparative analysis for Central and Eastern Europe (CEE) countries, regarding Okun's Law applicability in the post-financial crisis period, taking into consideration previous relevant researches. Therefore, the assessment is based on quarterly data, between 2010 and 2019, for unemployment and economic growth, recorded in five CEE countries, members of the Organization for Economic Co-operation and Development (OECD): Bulgaria, Czech Republic, Hungary, Poland and Romania. While the research is based both on the gap and difference method, it may lead to results sensitive to the method chosen in order to assess the unobservable variables, namely potential output and natural unemployment rate. In order to determine the structural components of the GDP and unemployment rate, it is used the Hodrick-Prescott univariate filter, applied on quarterly data. Before estimating the Okun's coefficient, the study also examines the causality relationship between unemployment and GDP using Granger causality test.

Suggested Citation

  • Andreescu Francesca Dana, 2024. "Empirical Evidences Regarding Okun's Law in the Central and Eastern Europe in the Post – Financial Crisis Period," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 18(1), pages 358-366.
    • Handle: RePEc:vrs:poicbe:v:18:y:2024:i:1:p:358-366:n:1003
    DOI: 10.2478/picbe-2024-0031
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    References listed on IDEAS

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    1. Laurence Ball & Davide Furceri & Daniel Leigh & Prakash Loungani, 2019. "Does One Law Fit All? Cross-Country Evidence on Okun’s Law," Open Economies Review, Springer, vol. 30(5), pages 841-874, November.
    2. Tomasz Gajderowicz & Gabriela Grotkowska & Leszek Wincenciak & Ewelina Wirtek, 2014. "Unemployment rate sensitivity to GDP fluctuations across Polish voivodeships," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 39.
    3. James D. Hamilton, 2017. "Why You Should Never Use the Hodrick-Prescott Filter," NBER Working Papers 23429, National Bureau of Economic Research, Inc.
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