Asymmetric Unemployment-Output Tradeoff in the Eurozone

30 Pages Posted: 17 Feb 2017

See all articles by Bo Tang

Bo Tang

University of Sheffield - Department of Economics

Carlos Bethencourt

University of La Laguna - Department of Applied Economics; CAERP

Date Written: December 19, 2016

Abstract

This study investigates the asymmetric unemployment-output tradeoff in the Eurozone. Building upon the framework of an augmented Okun’s law, the nonlinear autoregressive distributed lag (NARDL) modelling reveals that the nature of Okun’s law is asymmetric. For the Eurozone economies, the empirical evidence demonstrates that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. In addition, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output relationship. Therefore, member states might conduct effective labour market reforms taking into account the identified asymmetries and asymmetry determinants. These results also seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms could help to reduce asymmetric effects.

Keywords: unemployment-output tradeoff, nonlinear autoregressive distributed lag (NARDL), asymmetry determinants

JEL Classification: C22, E32, J64

Suggested Citation

Tang, Bo and Bethencourt, Carlos, Asymmetric Unemployment-Output Tradeoff in the Eurozone (December 19, 2016). Journal of Policy Modeling, 2017, Available at SSRN: https://ssrn.com/abstract=2919337 or http://dx.doi.org/10.2139/ssrn.2919337

Bo Tang (Contact Author)

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
UNITED KINGDOM

Carlos Bethencourt

University of La Laguna - Department of Applied Economics ( email )

Campus de Guajara
Camino de la Hornera
La Laguna, Tenerife 38071
Spain
+34 922 317117 (Phone)
+34 922 253742 (Fax)

HOME PAGE: http://webpages.ull.es/users/cbethenc/

CAERP

http://www.caerp.com/
C/ Perez de Rosas, Dcha.
Santa Cruz de Tenerife, Tenerife 38004
Spain

HOME PAGE: http://www.caerp.com

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