Okun's Law: Fit at 50?

41 Pages Posted: 28 Feb 2013

See all articles by Laurence Ball

Laurence Ball

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Daniel Leigh

International Monetary Fund (IMF)

Prakash Loungani

International Monetary Fund (IMF)

Date Written: January 2013

Abstract

This paper asks how well Okun's Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun's Law is a strong and stable relationship in most countries, one that did not change substantiallyduring the Great Recession. Accounts of breakdowns in the Law, such as the emergence of "jobless recoveries," are flawed. We also find that the coefficient in the relationship-the effect of a one percent change in output on the unemployment rate-varies substantially across countries. This variation is partly explained by idiosyncratic features of national labormarkets, but it is not related to differences in employment protection legislation.

Keywords: Cross country analysis, Developed countries, Economic fluctuations., Economic models, Labor markets, Okun's law, Unemployment, Unemploymnent, United States

JEL Classification: E24, E32

Suggested Citation

Ball, Laurence M. and Leigh, Daniel and Loungani, Prakash, Okun's Law: Fit at 50? (January 2013). IMF Working Paper No. 13/10. Available at SSRN: https://ssrn.com/abstract=2226268

Laurence M. Ball (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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International Monetary Fund (IMF) ( email )

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Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

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