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This thesis analyses Okun's law and its cross-country differences based on social expenditures. To estimate the law in time, Nadaraya-Watson kernel estimation is employed, which has not been applied to Okun's law in any previous study. Thus, to assess the robustness of the model, the statistical testing of hypotheses is used to evaluate the time-varying coefficients. The analysis is executed on OECD countries between 1995 and 2019, and the results are mainly in line with the previous literature. Periods with higher GDP growth and lower unemployment rates, on average, tend to have higher Okun's coefficients. Moreover, cross-country comparison reports the tendency of countries with, on average lower unemployment spending and higher GDP per capita to exhibit higher Okun's coefficients. |
