Paradigms
A Research Journal of Commerce, Economics, and Social Sciences
Online ISSN: 2410-0854
Print ISSN: 1996-2800
 
     
 

Paradigms Journal

ASYMMETRIC ANALYSIS IN OKUN’S LAW IN CASE OF PAKISTAN: A THRESHOLD COINTEGRATION ANALYSIS
Author(s) :
UMER HUSSAIN (Department of Econometrics, Pakistan Institute of Development Economics, Pakistan)
HAFSA HINA (Department of Econometrics, Pakistan Institute of Development Economics, Pakistan)
Abstract
Time series data entails considering the linearity or nonlinearity along threshold level before processing it to comprise in a model for policy makers to policy implication. Enders and Siklos (2001) claimed that the Engle and Granger (1987) procedure would be misleading in case if time series possesses possible asymmetric relationship. They recommended a model which includes the asymmetric adjustment to get stationarity of error term. This adjustment process is established by Balke and Fomby (1997) to familiarize Threshold co-integration to combine nonlinearity and co-integration along threshold error correction model additionally Hansen and Soe (2002) also advanced to test for asymmetry. The plenty of past and existing foreign studies point out that Okun’s coefficient is asymmetric in upswing and downswing phase of the economy because of labor force participation rate and sectorial growth rates. This study is to test the hypothesis of linear cointegration against threshold cointegration and asymmetric adjustment between unemployment rate and output for the time period 1964-2014. Further, the null hypothesis of linear cointegration is rejected against threshold cointegration. It is considered that the results of this study would assist the policy makers in formulating diverse policies related to macroeconomic targets like to stabilize prices, achieving targeted level of economic growth and to reduce the unemployment level and reduce the forecasting error of unemployment rate and output.
Keywords: Output, Unemployment Rate, Threshold Cointegration
 
 

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