The study implements the flexible nonlinear inference approach of Hamilton (2001 Hamilton, ID. 2001. A parametric approach to flexible nonlinear inference. Econometrica, 69: 537–73.
[CrossRef], [Web of Science ®]
) to assess the validity of Okun's law. Using US quarterly data from 1948:1 to 2004:2, overwhelming evidence is found of nonlinearity between cyclical components of unemployment and output. However, the relationship is still negative and provides strong support of (nonlinear) Okun's law.