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Asymmetric Unemployment-Output Tradeoff in the Eurozone

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  • Tang, Bo
  • Bethencourt, Carlos

Abstract

This study investigates the asymmetric unemployment-output tradeoff in the Eurozone. Building upon the augmented Okun’s law framework, the relationships between unemployment and output cannot be correctly specified in the static linear, static asymmetric and dynamic linear regressions. By contrast, the nonlinear autoregressive distributed lag (NARDL) model is well-specified and in this case indicates that the nature of Okun’s law is asymmetric. For the Eurozone, the NARDL estimates demonstrate that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. Furthermore, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output tradeoff. Thus, these results seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms or labour market reforms could help to reduce asymmetric effects.

Suggested Citation

  • Tang, Bo & Bethencourt, Carlos, 2015. "Asymmetric Unemployment-Output Tradeoff in the Eurozone," MPRA Paper 66043, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66043
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    References listed on IDEAS

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    2. Anderson, Derek & Hunt, Benjamin & Snudden, Stephen, 2014. "Fiscal consolidation in the euro area: How much pain can structural reforms ease?," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 785-799.
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    5. Lee, Jim, 2000. "The Robustness of Okun's Law: Evidence from OECD Countries," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 331-356, April.
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    Cited by:

    1. Omoshoro-Jones, Oyeyinka Sunday, 2021. "Asymmetry in Okun’s Law Revisited: New evidence on cyclical unemployment–cyclical output trade-off in the Free State Province using NARDL model," MPRA Paper 107126, University Library of Munich, Germany.
    2. Mindaugas Butkus & Janina Seputiene, 2019. "The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law," Economies, MDPI, vol. 7(4), pages 1-17, November.
    3. Vladimir Mihajlović & Gordana Marjanović, 2020. "Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 20(1), pages 94-116.
    4. Mindaugas Butkus & Kristina Matuzeviciute & Dovile Rupliene & Janina Seputiene, 2020. "Does Unemployment Responsiveness to Output Change Depend on Age, Gender, Education, and the Phase of the Business Cycle?," Economies, MDPI, vol. 8(4), pages 1-29, November.
    5. Cuesta, Lizeth, 2020. "Impacto de la política de empleo juvenil en la disminución del desempleo en los países de la Unión Europea, período 2002-2017 [Impact of youth employment policy on the reduction of unemployment in ," MPRA Paper 111026, University Library of Munich, Germany, revised 08 Aug 2021.

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    More about this item

    Keywords

    unemployment-output tradeoff; nonlinear autoregressive distributed lag (NARDL); asymmetry determinants.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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