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Okun's Law across the Business Cycle: New Evidence on the Sources of Asymmetries
Harkrader, James C.
Harkrader, James C.
Abstract
This paper examines possible sources of asymmetries in Okun's law, which describes the relationship between cyclical changes in the unemployment rate and cyclical changes in output; that is, the relationship between deviations in unemployment from its natural rate and deviations in output from its trend. Macroeconomic shocks can generally explain the asymmetry in the Okun relationship between periods of economic expansion and contraction. We find no evidence of asymmetry between periods of positive and negative cyclical (above trend or below trend) output. In turn, we conclude that the asymmetry between periods of economic expansion and contraction results from policy decisions and exogenous shocks rather than an underlying structural component of the relationship such as inherent risk aversion among employers.
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Thesis is part of Honors ETD pilot project, 2008-2013. Migrated from Dspace in 2016.
Date
2013-01-01
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Keywords
Okun's Law, Phillips Curve, Business cycles, Macroeconomics
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Department
Economics