A State-Level Analysis of Okun’s Law

Amy Guisinger, Ruben Hernandez-Murillo, Michael Owyang and Tara Sinclair

No 1523, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Okun?s law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential. In this paper, we estimate Okun?s coefficients for each U.S. state and examine the potential factors that explain the heterogeneity of the estimated Okun relationships. We find that indicators of more flexible labor markets (higher levels of education achievement in the population, lower rate of unionization, and a higher share of nonmanufacturing employment) are important determinants of the differences in Okun?s coefficient across states. Finally, we show that Okun?s relationship is not stable across specifications, which can lead to inaccurate estimates of the potential determinants of Okun?s coefficient.

Keywords: correlated unobserved components; potential output; natural rate of unemployment (search for similar items in EconPapers)
JEL-codes: C32 E32 R11 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2015-10-21
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A state-level analysis of Okun's law (2018)
Working Paper: A State-Level Analysis of Okun's Law (2015)
Working Paper: A State-Level Analysis of Okun's Law (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1523

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DOI: 10.26509/frbc-wp-201523

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