A flexible nonlinear inference to Okun’s law for Turkish economy in the last decade

Abstract

The study applies the flexible nonlinear inference approach of James D. Hamilton (2001) to investigate the relationship between cyclical components of unemployment and output in the Turkish economy where the unemployment rate remains at double digits despite the relatively stable economic environment over the last decade. The paper shows that economic expansion and contraction terms have an asymmetric effect on cyclical unemployment in Turkey. Moreover, the study identifies a specific range for the output gap level at which jobless growth pattern occurs in the Turkish economy. According to our findings, contrary to standard literature, cyclical component of unemployment does not decrease even though cyclical component of output is positive and increases in the middle stages of the upswing phase of the economy. This result may also indicate that the employers are reluctant to extend employment and alter into informalization for reasons such as over-valued domestic currency, surplus labour force and/or any rigid regulatory frameworks in the middle stages of the expansion phase of the economy. However, they become eager to expand employment and renounce informalization only after a certain rate of economic growth is achieved.

Can the asymmetry of Okun's law be interpreted from a social perspective? Evidence from the World Bank

“…Mihajlovic uses the example of South East Europe, where Okun's coefficient has an asymmetric effect in five out of eight countries, suggesting that the unemployment effect is more pronounced in economic downturns than in upturns ( 39 ). This is supported by the data for Turkey and Mexico ( 40 , 41 ).…”

Validity and Asymmetry of Okun’s Law: Evidence from Asian Economies

“…The study also concluded that the impacts of economic expansion on unemployment are smaller as compared to economic contraction. These findins are consistant with Arabaci and Arabaci (2018). Louail and Riache (2019) have also analyzed the asymmetric nature of okuns Law in case of developing and particularly for Saudi Arabia.…”

Assessing Asymmetry in Okun's Law: A Nonlinear Approach in the Turkish Economy

“…The study states that the Okun coefficient is significantly differencing in expansion and contraction regimes. Arabacı & Arabacı (2018) studied the non-linear structure in Okun's law by means of the unemployment gap and real GDP gap series. Based on the study, it is stated that the contraction and expansion periods of the economy have an asymmetric effect on unemployment in the period 2001-2012 for Turkey.…”