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Wednesday, July 3, 2013

Long-term growth, and unemployment


What relationship exists between a country’s ongoing real GDP growth per capita, and their immediate unemployment rate?  In this chart below we show the data for 21 advanced countries, using IMF’s annual outlook data.  On the x-axis we show the expected 2014 unemployment rate, and on the y-axis we show the median forecasted per capita growth over seven years.  A 95% confidence interval is shaded about the regression line. 


At face value, we see an insignificant relationship between these two variables.  The statistical characteristics for this relationship are about a 0.01 value, for both the slope and r2.  But if we separate the data into non-euro area countries and those in the euro-area, we see a strong distinction in the relationship.  We also population-weight the country data to de-emphasize smaller countries.  One can see the respective results below, alongside the 95% confidence intervals.


The statistical characteristics for the non-euro area relationship are a -0.2 slope and a 0.4 r2.  While for the euro-area relationship they are about a 0.02 slope and an 0.2 r2.

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