Okun´s law in Colombia: a non-linear cointegration

Working Papers
Author(s) / Editor(s): 
Luz A. Flórez
Karen L. Pulido- Mahecha
Mario A. Ramos-Veloza
Publishing House: 
Banco de la República
JEL Classification: 


The opinions contained in this document are the sole responsibility of the authors and do not commit Banco de la República or its Board of Directors.


This paper identifies Okun´s law in Colombia between 1984 and 2016 using a Vector Error Correction Model (VECM) as there is evidence of a long-term relationship between the unemployment rate and the GDP. Results suggest that after a one percent increase in GDP, the unemployment rate is reduced by 0.45 percentage points in the long run (after sixteen quarters). In addition we inspect for nonlinearities using a threshold cointegration model (TVECM). Results suggest the existence of two regimes a low and a high one. The high regime starts at   the late nineties and is associated with a more flexible labor market. Under this regime, a 1% increase in GDP, reduces the UR 0.6 percentage points after eighteen quarters. By contrast, under the low regime the response is 0.2 percentage points after eight quarters.

Category / Classification: 
Documentos en elaboración

Contenido disponible en / Available in:

  • Español
  • English

This content has been translated into English for informational purposes. Upon any query regarding its interpretation or enforceability, the Spanish version shall be deemed official, and will prevail over the English version. The authors of specific texts such as working papers or articles select the language of publication; therefore, there might be cases in which the content may only be available in English. Este contenido ha sido traducido al inglés con fines informativos. En caso de duda sobre su interpretación y/o aplicación, se entenderá que la versión en español es la versión oficial y prevalecerá sobre aquella en inglés. Para casos particulares como documentos de trabajo o artículos, el idioma original de publicación es escogido por el autor, por lo cual puede haber casos en los que el contenido esté disponible sólo en inglés.