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Unemployment and output dynamics in CIS countries: Okun's law revisited

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Title: Unemployment and output dynamics in CIS countries: Okun's law revisited
Authors: Ibragimov, M
Ibragimov, R
Item Type: Journal Article
Abstract: Okun’s law is a well-known relationship between the change in the unemployment rate and output growth. The main objective of this article is to provide a rigorous econometric analysis of Okun’s law for several CIS countries using different models and theoretically justified econometric methods. The traditional approach to Okun’s law estimation using OLS regressions does not account for possible endogeneity of regressors and the implied inconsistency of the estimates obtained. These problems point out to incorrectness of applications of the standard OLS estimation techniques. Our study addresses these issues by using econometrically justified instrumental variable regression methods. The article provides the results and discussions on practical use of Okun’s relationships for evaluation of average effects of economic growth on the unemployment rate, and vice versa; importance of accounting for confidence intervals in applications of Okun’s models to economic development analysis and cross-country comparisons and evaluation of effects of crises and other structural shocks on the economies considered. We also discuss in detail the results of formal econometric tests and economic motivation for validity of instrumental variables used in the study. The formal econometric tests, together with economic arguments, allow us to determine the most appropriate Okun-type models for each of the CIS countries under consideration.
Issue Date: 1-Jan-2017
Date of Acceptance: 1-Dec-2016
URI: http://hdl.handle.net/10044/1/66640
DOI: https;//dx.doi.org/10.1080/00036846.2016.1262519
ISSN: 0003-6846
Publisher: Taylor & Francis (Routledge)
Start Page: 3453
End Page: 3479
Journal / Book Title: Applied Economics
Volume: 49
Issue: 34
Copyright Statement: © 2016 Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 14 Dec 2016, available online: https://www.tandfonline.com/doi/full/10.1080/00036846.2016.1262519
Sponsor/Funder: Russian Science Foundation
Funder's Grant Number: 16-18-10432
Keywords: Social Sciences
Business & Economics
GDP growth
Okun's law
instrumental variable regressions
instrumental variables
exogenous and endogenous variables
instrument relevance
robust standard errors
the 2008 global economic and financial crisis
1402 Applied Economics
1502 Banking, Finance And Investment
1117 Public Health And Health Services
Publication Status: Published
Online Publication Date: 2016-12-14
Appears in Collections:Imperial College Business School