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Panel Tests of Okun's Law for Ten Industrial Countries
Author(s) -
Freeman Donald G.
Publication year - 2001
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/39.4.511
Subject(s) - okun's law , economics , unemployment , sample (material) , real gross domestic product , econometrics , macroeconomics , capital (architecture) , panel data , unemployment rate , history , chemistry , archaeology , chromatography
Okun's Law is one of the most enduring stylistic facts in macroeconomics. This article uses new developments in trend/cycle decomposition to test Okun's Law for a panel of ten industrial countries, finding that Okun's original estimate for the U.S. of three points of real GDP growth for each one percent reduction in the unemployment rate now averages just under two points of real GDP growth for the sample countries. Pooled estimates for Europe are smaller than estimates for the rest of the sample. Also, this article finds that omission of capital and labor inputs may have biased previous estimates.