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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

    as
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