Endogeneity of Okun’s law

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Title:	Endogeneity of Okun’s law
Authors:	Huang, G.;Huang, H. C.;Liu, X. J.;Zhang, J.
Keywords:	Okun’s law;GDP growth;unemployment rate;oil price shocks
Date:	2019-08-07
Issue Date:	2021-03-11 12:11:29 (UTC+8)
Abstract:	This article contributes to the literature of Okun’s law by addressing an under-noticed but important problem, i.e. endogeneity. By using annual variation in the international oil price weighted with countries’ average oil net-export GDP ratios as a plausibly exogenous instrumental variable for economic growth, the two-stage least squares estimates indicate that faster real GDP growth is associated with lower overall, male and female unemployment rates, confirming the validity of Okun’s law. According to our benchmark estimate, 1 percentage point increase in economic growth leads to a 0.252 percentage point decrease in civil unemployment rate.
Relation:	Applied Economics Letters 27(11), p.910-914
DOI:	10.1080/13504851.2019.1646861
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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