The Okun curve is non-linear

This paper presents cross-country evidence on a non-linear Okun curve. The analysis is based on a simple error-correction model of unemployment. The model is estimated using a threshold model estimator. Evidence from 20 OECD countries for the period 1960-1997 provides support for the existence of non-linearities in terms of the output growth effects. Output growth has a strong effect on unemployment when unemployment is low and output is high, and vice verse. Thus, in bad times, the effect of output growth on unemployment can be close to zero. (C) 2001 Elsevier Science B.V. All rights reserved.