Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154180
Authors: 
Anderton, Robert
Aranki, Ted
Bonthuis, Boele
Jarvis, Valerie
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper No. 1747
Abstract: 
This paper examines the usefulness of the Okun relationship as a “rule of thumb” for predicting changes in unemployment, as a result of changes in output. It argues that a disaggregated version of the Okun relationship – making use of the differential reaction of unemployment to changes in the various expenditure components of GDP - significantly enhances the capacity of the Okun relationship (in comparison to the aggregate “rule of thumb”) for predicting movements in unemployment. The paper tests this hypothesis using a dataset for the 17 euro area countries over the period 1996Q1-2013Q4. The results suggest that euro area unemployment is particularly sensitive to movements in the consumption component of GDP, while movements in foreign trade (exports and imports) have a much lower impact on unemployment developments. This reflects the highly labour-intensive nature of the services that represent the bulk of consumers’ expenditure, while the higher productivity manufacturing-related content of exports tends to be less labour intensive.
Subjects: 
expenditure components of GDP
Okun relationship
panel econometrics
Unemployment
JEL: 
E2
E24
C23
ISBN: 
978-92-899-1155-9
Document Type: 
Working Paper

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