The Empirics of Okun’s Law Using Augmented ARDL: The Case of Pakistan

Abstract

From time series data covering 1972 to 2024, the objective of the study is to investigate the Okun's coefficient for Pakistan. The coefficient of Okun's law is determined using the Augmented ARDL econometric technique to estimate the long-run elasticities and short-run dynamics while sidestepping degenerate cases. Four variations of the Okun's law—the gap, difference, dynamic version, and augmented production function versions—are applied to estimate the Okun's coefficient. In order to measure output and unemployment gap, Hodrick-rescott (HP) filter is also used. The empirical results demonstrated that in case of Pakistan the law doesn’t hold as evidenced by the comparatively low coefficients obtained applying all four versions.