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 m odel is estimated using a threshold model estimator. Evidence from 20 OECD countries for the period 1960-1997 provides support for the existence of no n-linearities in terms of the output growth effects. Output growth has a st rong effect on unemployment when unemployment is low and output is high, an d vice verse. Thus, in bad times, the effect of output growth on unemployme nt can be close to zero. (C) 2001 Elsevier Science B.V. All rights reserved .