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.
HAFSA HINA, UMER HUSSAIN. (2016) ASYMMETRIC ANALYSIS IN OKUN’S LAW IN CASE OF PAKISTAN: A THRESHOLD COINTEGRATION ANALYSIS, Paradigms , Vol 10, Issue 2 .
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