Macroeconomic shocks and Okun’s Law

Alexander Ziegenbein

Economics Letters, 2021, vol. 202, issue C

Abstract: I propose a simple method to estimate a macro shock-specific Okun elasticity, which characterises by how much the unemployment rate falls when output increases by one percentage point because of a specific macroeconomic shock. Using data for the US, I consider government spending, tax, monetary policy, financial, technology, and oil shocks. I find the Okun elasticity is largely stable across shocks, but subtle differences emerge: (i) the elasticity is larger for financial shocks, (ii) the speed at which unemployment adjusts relative to output depends on the shock driving fluctuations.

Keywords: Okun’s Law; Instrumental variables; Economic fluctuations (search for similar items in EconPapers)
JEL-codes: C14 C32 C36 E24 E32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:202:y:2021:i:c:s0165176521001038

DOI: 10.1016/j.econlet.2021.109826

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