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Okun's law revisited. Is there structural unemployment in developed countries?

  • Ivan O. Kitov

Okun's law for the biggest developed countries is re-estimated using the most recent data on real GDP per capita and the rate of unemployment. Our results show that the change in unemployment rate can be predicted with a high accuracy. The link needs the introduction of a structural break which might be caused by the change in monetary policy or/and in measurement units. Statistically, the link between the studied variables is characterized by the coefficient of determination between 0.40 (Australia) and 0.84 (the USA). The residual errors can be associated with measurement errors. The obtained results suggest the absence of structural unemployment in the studied developed countries.

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File URL: http://arxiv.org/pdf/1109.4383
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Paper provided by arXiv.org in its series Papers with number 1109.4383.

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Date of creation: Jul 2011
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Handle: RePEc:arx:papers:1109.4383
Contact details of provider: Web page: http://arxiv.org/

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  1. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
  2. Dale T. Mortensen, 2005. "More on Unemployment and Vacancy Fluctuations," 2005 Meeting Papers 326, Society for Economic Dynamics.
  3. David Altig & Terry J. Fitzgerald & Peter Rupert, 1997. "Okun's law revisited: should we worry about low unemployment?," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
  4. Peter Tillmann, 2010. "Do FOMC members believe in Okun's Law?," Economics Bulletin, AccessEcon, vol. 30(3), pages 2398-2404.
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