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INVESTIGATING OKUN's LAW BY THE STRUCTURAL BREAK WITH THRESHOLD APPROACH: EVIDENCE FROM CANADA *
Author(s) -
HUANG HOCHUAN RIVER,
CHANG YAKAI
Publication year - 2005
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2005.00466.x
Subject(s) - okun's law , economics , structural break , econometrics , empirical evidence , macroeconomics , unemployment , unemployment rate , philosophy , epistemology
This study proposes a structural change with threshold approach to re‐evaluate the empirical validity of Okun's law using data from Canada. Based on the Hodrick–Prescott and band‐pass filtered data, we find strong support of structural change as well as threshold nonlinearity. This suggests that the use of purely linear specifications for analyzing Okun's law may lead to misleading results. The implications of the empirical results for macroeconomic policy are also briefly discussed.