Application of the vector-autoregression VAR model in the analysis of unemployment hysteresis in the context of Okun’s Law

Authors

DOI:

https://doi.org/10.18559/ref.2022.2.4

Keywords:

vector-autoregression model VAR, time series analysis, hysteresis in the labour market, Okun’s Law, macroeconometrics

Abstract

Unemployment is an important macroeconomic issue both in theoretical terms and for economic reality. On the theoretical ground, the unemployment rate, which is a measure of the share of unemployed units of the labour supply in the economy, determines the output gap at a certain adjustment parameter determined by the marginal productivity of labour. One of the causes of rising or persistent unemployment in the economy is the phenomenon of unemployment hysteresis, which occurs as a result of changes in the marginal disutility of labour, the strength of the wage bargain and other exogenous conditions arising in previous periods. The purpose of the study conducted in the following paper is to investigate the phenomenon of hysteresis in the labour market by analysing the significance of the impact of the unemployment rate in previous periods. In addition, the work aims to study Okun’s Law as an effect of production dynamics on the unemployment rate. The study of the dependence was carried out through the estimation of a macroeconometric time series model—vector-autoregression (VAR) on the example of statistical data for Poland obtained from Statistics Poland (Stat.gov.pl) and complied raports about national accounts in the quarterly sequence for the years 2015–2021.

Downloads

Download data is not yet available.

Author Biography

  • Patryk Kołbyko, Maria Curie-Skłodowska University, Lublin, Poland

    Maria Curie-Skłodowska University, Lublin, Poland

References

Batóg, B., & Batóg, J. (2012). Analiza wydajności pracy największych polskich przedsiębiorstw w latach 2004–2008 na podstawie danych panelowych. Studia i Prace Wydziału Nauk Ekonomicznych i Zarządzania, 26, 21–32.
View in Google Scholar

Blanchard, O. J., & Summers, L. H. (1986). Hysteresis and the European unemployment problem, NBER Working Paper Series, No. 1950. https://doi.org/10.3386/w1950 DOI: https://doi.org/10.3386/w1950
View in Google Scholar

Blanchard, O., & Quah, D. (1988). The dynamic effects of aggregate demand and supply disturbances.NBER Working Paper Series, No. 2737. https://doi.org/10.3386/w2737 DOI: https://doi.org/10.3386/w2737
View in Google Scholar

Bohner, M., Gelles, & G., Heim, J. (2010). Multiplier-accelerator models on time scales. International Journal of Statistics and Economics, 4(10), 1–12.
View in Google Scholar

Budnik, K., Greszta, M., Hulej, M., Kolasa, M., Murawski, K., Rot, M., Rybaczyk, B., & Tarnic- ka, M. (2009). The new macroeconometric model of the Polish economy. National Bank of Poland Working Paper, No. 62. https://doi.org/10.2139/ssrn.1752088 DOI: https://doi.org/10.2139/ssrn.1752088
View in Google Scholar

Cavallo, A., De Maria, G., & Natale, C. (2005). Limit cycles in feedback control systems with hys- teresis. IFAC Proceedings Volumes, 38(1), 360–365. https://doi.org/10.3182/20050703- 6-CZ-1902.00714 DOI: https://doi.org/10.3182/20050703-6-CZ-1902.00714
View in Google Scholar

Chenery, H. B. (1952). Overcapacity and the acceleration principle. Econometrica, 20(1), 1–28. https://doi.org/10.2307/1907804 DOI: https://doi.org/10.2307/1907804
View in Google Scholar

Clark, J. M. (1917). Business acceleration and the law of demand: A technical fac- tor in economic cycles. Journal of Political Economy, 25(3), 217–235. https://doi. org/10.1086/252958 DOI: https://doi.org/10.1086/252958
View in Google Scholar

Cross, R., Darby, J., Ireland, J., &Piscitelli, L. (2005). Hysteresis and unemployment: A pre- liminary investigation.Computing in Economics and Finance, Society for Computational Economics. DOI: https://doi.org/10.1016/B978-012480874-4/50011-7
View in Google Scholar

Davidson, R., & MacKinnon J. G. (2004). Econometric theory and methods. Oxford University Press.
View in Google Scholar

Friedman, M. (1966). The methodology of positive economics. University of Chicago Press. https://doi.org/10.1017/cbo9780511581427.002 DOI: https://doi.org/10.1017/CBO9780511581427.002
View in Google Scholar

Gajda, J. B. (2001). Prognozowanie i symulacja a decyzje gospodarcze. Wydawnictwo C.H. Beck.
View in Google Scholar

Gali, J. (2020). Insider-outsider labour markets, hysteresis and monetary policy. NBER Working Paper Series, No. 27385. https://doi.org/10.3386/w27385 DOI: https://doi.org/10.2139/ssrn.3632611
View in Google Scholar

Guichard, S., & Rusticelli, E. (2010). Assessing the impact of the financial crisis on struc- tural unemployment in OECD countries. OECD Economics Department Working Papers, No. 767, OECD Publishing. https://doi.org/10.1787/5kmftp8khfjg-en DOI: https://doi.org/10.1787/5kmftp8khfjg-en
View in Google Scholar

Grinfeld, M., Cross, R., & Lamba, H. (2009). Hysteresis and economics—taking the eco- nomic past into account. IEEE Control Systems Magazine, 29(1), 30–43. DOI: https://doi.org/10.1109/MCS.2008.930445
View in Google Scholar

Hall, S. G., Roudoi, A., Albu, L. L., Lupu, R., & Călin, A. C. (2014). Lawrence R. Klein and the economic forecasting—a survey. Romanian Journal of Economic Forecasting, 17(1), 5–14. https://ipe.ro/rjef/rjef1_14/rjef1_2014p5-14.pdf
View in Google Scholar

Hara, N., Ichiue, H., Kojima, S., & Nakamura, K. (2009). Practical use of macroeconomic models at central banks. Research and Statistics Department.
View in Google Scholar

Hatemi-J, A., & Hacker, S. (2009). Can LR test be helpful in choosing the optimal lag or- der in the VAR model when information criteria suggest different lag orders? Applied Economics, 41(9), 1121–1125. https://doi.org/10.1080/00036840601019273 DOI: https://doi.org/10.1080/00036840601019273
View in Google Scholar

Jamróz, P., & Kilon, J. (2015). Informational (in)efficiency of the Polish futures market. Zeszyty Naukowe Uniwersytetu Szczecińskiego. Finanse, Rynki Finansowe, Ubezpieczenia, 75, 193–204. https://doi.org/10.18276/frfu.2015.75-16 DOI: https://doi.org/10.18276/frfu.2015.75-16
View in Google Scholar

Jeznach, M. (2017). Quarterly national accounts of gross domestic product 2012–2016. National Accounts Department, Zakład Wydawnictw Statystycznych.
View in Google Scholar

Kaldor, N. (1940). A model of the trade cycle. The Economic Journal, 50(197), 78–92. https:// doi.org/10.2307/2225740 DOI: https://doi.org/10.2307/2225740
View in Google Scholar

Karunaratne, N. D. (1995). Paradox of hysteresis and real-wage flexibility in Australia. Journal of Post Keynesian Economics, 17(4), 503–514. https://doi.org/10.1080/0160 3477.1995.11490046 DOI: https://doi.org/10.1080/01603477.1995.11490046
View in Google Scholar

Kilian, L. (2011). Structural vector autoregressions. CEPR Discussion Paper, No. DP8515. Kufel, T. (2007). Ekonometria. Rozwiązywanie problemów z wykorzystaniem program GRETL. Wydawnictwo Naukowe PWN.
View in Google Scholar

Lee, C. W., & Huruta, A. D. (2019). Okun’s law in an emerging country: An empirical analysis in Indonesia. International Entrepreneurship Review, 5(4), 141–160. DOI: https://doi.org/10.15678/IER.2019.0504.09
View in Google Scholar

Mc Namara, H., & Pokrovskii, A. (2006). Hysteresis in the trade cycle. Physica B: Condensed DOI: https://doi.org/10.1016/j.physb.2005.10.048
View in Google Scholar

Matter, 372(1–2), 202–206. https://doi.org/10.1016/j.physb.2005.10.048 DOI: https://doi.org/10.1016/j.physb.2005.10.048
View in Google Scholar

Okun, A. M. (1962). Potential GNP: its Measurement and Significance. Cowles Foundation Paper, No. 190.
View in Google Scholar

Pata, U., Yurtkuran, S., & Kalca, A. (2018). A revisited causality analysis of Okun’s Law: The case of Turkey. Theoretical and Applied Economics, 4(617), 121–134.
View in Google Scholar

Perron, P., & Qu, Z. (2007). Estimating and testing structural changes in multivariate regres- sions. Econometrica, 70(2), 459–502. https://doi.org/10.1111/j.1468-0262.2006.00754.x DOI: https://doi.org/10.1111/j.1468-0262.2006.00754.x
View in Google Scholar

Perzyna, A. (2022). Quarterly national accounts of gross domestic product 2017–2021. Statistics Poland, Zakład Wydawnictw Statystycznych.
View in Google Scholar

Robinson, W. (1998). Forecasting inflation using VAR analysis. Bank of Jamaica. Rutherford, M. (1987). Wesley Mitchell: Institutions and quantitative methods. Eastern Economic Journal, 12(1), 63-73.
View in Google Scholar

Stat.gov.pl. (2022). Stopa bezrobocia rejestrowanego w latach 1990-2022, https://stat.gov.pl/obszary-tematyczne/rynek-pracy/bezrobocie-rejestrowane/stopa-bezrobocia- rejestrowanego-w-latach-1990-2022,4,1.html
View in Google Scholar

Valera, M. L. G., & Dean, A. R. R. (2021). Analyzing the unemployment hysteresis in the Philippines using the VAR model. Journal of Global Business and Trade, 17(1), 17–25. https://doi.org/10.20294/jgbt.2021.17.1.17 DOI: https://doi.org/10.20294/jgbt.2021.17.1.17
View in Google Scholar

Warzecha, K., & Wójcik, A. (2014). Using vector autoregressions models to the forecast- ing of the choosing national economy. Studia Ekonomiczne. Uniwersytet Ekonomiczny w Katowicach, 203, 181–192.
View in Google Scholar

Wójcik, A. (2014). Modele wektorowo-autoregresyjne jako odpowiedź na krytykę struktural- nych wielorównaniowych modeli ekonometrycznych. Studia Ekonomiczne Uniwersytet Ekonomiczny w Katowicach, 193, 112–128.
View in Google Scholar

Zwiech, P. (2013). Determinants of socio-economic inequalities in the context of the theory of competitive labour market. Optimum. Studia Ekonomiczne, 2(62), 106–116. https://doi.org/10.15290/ose.2013.02.62.08 DOI: https://doi.org/10.15290/ose.2013.02.62.08
View in Google Scholar

Downloads

Published

2023-02-17 — Updated on 2023-02-22

Versions

Issue

Section

Articles

How to Cite

Kołbyko, P. (2023). Application of the vector-autoregression VAR model in the analysis of unemployment hysteresis in the context of Okun’s Law. Research Papers in Economics and Finance, 6(2), 68-85. https://doi.org/10.18559/ref.2022.2.4 (Original work published 2023)