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Theoretical and Applied Economics
No. 4 / 2018 (617), Winter

A revisited causality analysis of Okun’s Law: The case of Turkey

Ugur Korkut PATA
Osmaniye Korkut Ata University, Turkey
Suleyman YURTKURAN
Karadeniz Technical University, Turkey
Adem KALCA
Karadeniz Technical University, Turkey

Abstract. The relationship between the gross domestic product (GDP) and unemployment is analyzed with Okun’s Law. Different studies that assess whether the two variables affect one another are examined with regard to Turkey. In this study, the authors examined whether an increase in GDP causes unemployment to fall or not with the youth (15-24 years) unemployment rate, prime working years (25-54) unemployment rate, and general (15-64) unemployment rate in Turkey. The relationship between GDP and unemployment was investigated using the unrestricted VAR and Hsiao’s Granger causality test, covering the period of 2006q2 to 2014q4. According to the causality tests, the empirical results show a negative unidirectional and statistically significant causality relationship from GDP to unemployment rates in the short term. Consequently, Okun’s Law is valid for Turkey.

Keywords: economic growth, unemployment, Okun’s law, Hsiao’s Granger causality, unrestricted VAR.

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