Okun's Law in Australia

Abbas Valadkhani

The Economic Record, 2015, vol. 91, issue 295, 509-522

Abstract: type="main" xml:id="ecor12221-abs-0001">

This paper examines the dynamic behaviour of the Okun coefficient using quarterly data (1980Q3–2014Q1). It is found that a rise in labour productivity and a fall in output can increase unemployment. A 1 per cent reduction in the unemployment rate requires only a 2.4 per cent increase in real output growth above the average growth rate, but during recessions this figure increases to 4.53 per cent. The probability of observing a higher coefficient was limited to recessionary periods. Given that recessions are now less frequent, Okun's law continues to be a useful rule of thumb in Australia.

Date: 2015
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