Revisiting Okun's law for Mexico: an analysis of the permanent and transitory components of unemployment and output

Unlike usual estimation techniques, we follow Clark (1989) to estimate the correlation between the transitory components of unemployment and output as part of a system of correlations between the permanent and transitory components of both series. This model provides better estimate of the Okun’s Law and it takes into account the correlations that arise between the permanent and transitory components of unemployment and output within each series and across series. We find that the Okun’s coefficient for Mexican economy is significantly lower than previous estimates.