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

Abstract

In this paper, the presence of asymmetric behavior in Okun’s Law for Turkey during the period 2005-2023 is analysed. The relationship between economic growth and the unemployment rate has been assessed in the context of nonlinear time series models. Nonlinear methods are typically favoured in macroeconomic series analyses as they generate more robust findings. In this paper, nonlienear symmetric KSS cointegration and nonlinear asymmetric Hepsağ cointegration tests were used to test for the existence of a long-run relationship between the variables, and the Hatemi-j test was used to test for nonlinear causality. Our findings demonstrate no evidence of co-integration between the variables. Hatemi-j test results, on the other hand, indicate the presence of a causality relationship from negative growth components to positive unemployment components. Specifically, a decrease in the growth was found to be the only one of all the components that was a statistically significant cause of an increase in the unemployment.