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Does One Law Fit All? Cross-Country Evidence on Okun’s Law

Author

Listed:
  • Laurence Ball

    (Johns Hopkins University)

  • Davide Furceri

    (University of Palermo
    IMF)

  • Daniel Leigh

    (IMF)

  • Prakash Loungani

    (IMF
    Policy Center for the New South)

Abstract

This paper compares the performance of Okun’s Law in advanced and developing economies. On average, the Okun coefficient—which measures the short-run responsiveness of labor markets to output fluctuations—is about half as large in developing as in advanced countries. However, there is considerably heterogeneity across countries, with Okun’s Law fitting quite well for a number of developing countries. We have limited success in explaining the reasons for this heterogeneity. The mean unemployment rate and the share of services in GDP are associated with the Okun coefficient, whereas other factors such as indices of overall labor and product market flexibility do not appear to play a consistent role.

Suggested Citation

  • Laurence Ball & Davide Furceri & Daniel Leigh & Prakash Loungani, 2019. "Does One Law Fit All? Cross-Country Evidence on Okun’s Law," Open Economies Review, Springer, vol. 30(5), pages 841-874, November.
    • Handle: RePEc:kap:openec:v:30:y:2019:i:5:d:10.1007_s11079-019-09549-3
    DOI: 10.1007/s11079-019-09549-3
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    References listed on IDEAS

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    Cited by:

    1. Gutiérrez-Romero, Roxana, 2021. "Inequality, persistence of the informal economy, and club convergence," World Development, Elsevier, vol. 139(C).
    2. Hawkins, Raymond J. & Li, Yichu, 2022. "Okun loops and anelastic relaxation in the EU15," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    3. Guénette, Justin Damien & Kose, M. Ayhan & Sugawara, Naotaka, 2022. "Is a Global Recession Imminent?," MPRA Paper 114627, University Library of Munich, Germany.
    4. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2022. "The heterogeneity of Okun's law: A metaregression analysis," GLO Discussion Paper Series 1069, Global Labor Organization (GLO).
    5. Hawkins, Raymond J. & Li, Yichu, 2021. "Okun loops and anelastic relaxation in the G7," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 576(C).
    6. Md. Noman Siddikee & Jawadur Rahim Zahid & Athya Sanjida & Polina Oshchepkova, 2022. "Sustainable economic growth and unemployment nexus of SDG 2030: Bangladesh in Asia," SN Business & Economics, Springer, vol. 2(1), pages 1-20, January.
    7. Asma Raies, 2023. "Sustainable Employment in Developing and Emerging Countries: Testing Augmented Okun’s Law in Light of Institutional Quality," Sustainability, MDPI, vol. 15(4), pages 1-13, February.
    8. Kiss, Tamas & Nguyen, Hoang & Österholm, Pär, 2022. "Modelling Okun’s Law – Does non-Gaussianity Matter?," Working Papers 2022:1, Örebro University, School of Business.
    9. Porras-Arena, M. Sylvina & Martín-Román, Ángel L. & Dueñas Fernández, Diego & Llorente Heras, Raquel, 2022. "Okun’s Law: The effects of the COVID-19 pandemic and the temporary layoffs procedures (ERTE) on Spanish regions," MPRA Paper 115530, University Library of Munich, Germany.
    10. Karlsson, Sune & Österholm, Pär, 2020. "A hybrid time-varying parameter Bayesian VAR analysis of Okun’s law in the United States," Economics Letters, Elsevier, vol. 197(C).
    11. M. Sylvina Porras-Arena & Mauricio A. Suárez Cal, 2021. "What’s behind Okun’s law? A multiple equation approach to the Uruguayan labour market," Documentos de Trabajo (working papers) 21-30, Instituto de Economía - IECON.
    12. Mindaugas Butkus & Kristina Matuzeviciute & Dovile Rupliene & Janina Seputiene, 2020. "Does Unemployment Responsiveness to Output Change Depend on Age, Gender, Education, and the Phase of the Business Cycle?," Economies, MDPI, vol. 8(4), pages 1-29, November.
    13. Davide Furceri & João Tovar Jalles & Prakash Loungani, 2020. "On the Determinants of the Okun’s Law: New Evidence from Time-Varying Estimates," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(4), pages 661-700, December.
    14. Mina Baliamoune, 2022. "Trade and Youth Labor Market Outcomes: Empirical Evidence and Policy Implications," Research papers & Policy papers 1945, Policy Center for the New South.
    15. Zidong An & Tayeb Ghazi & Nathalie Gonzalez Prieto & Aomar Ibourk, 2019. "Growth and Jobs in Developing Economies: Trends and Cycles," Open Economies Review, Springer, vol. 30(5), pages 875-893, November.

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