The heterogeneity of Okun's law: A metaregression analysis

M. Sylvina Porras-Arena and Ángel Martín-Román ()

Economic Modelling, 2023, vol. 128, issue C

Abstract: Okun's law, a significant parameter in empirical research and policy analysis, faces considerable heterogeneity. This stems from its dual interpretation in the literature, with one implying unemployment's effects on output and the other suggesting output's effects on unemployment. Consequently, comparing results from these approaches is not straightforward. Even within each approach, variability persists. Through meta-analysis and correction for publication bias, we identified the primary factor contributing to heterogeneity in both approaches: labor market characteristics (e.g., self-employment, labor laws, productive structure), leading to varying reactions of unemployment to cyclical output changes across different labor markets. The second most influential factor was methodological issues (data type, frequency, spatial coverage, sample period, etc.), highlighting how researchers' decisions impact results. Lastly, the underlying theoretical model also accounted for some variability. Okun proposed three models to estimate the relationship, which yielded comparable results for the US economy, but for other economies this was less evident.

Keywords: Okun's law; Heterogeneity; Metaregression (search for similar items in EconPapers)
JEL-codes: C55 E23 E24 J60 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The heterogeneity of Okun’s law: A metaregression analysis (2022)
Working Paper: The heterogeneity of Okun's law: A metaregression analysis (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:128:y:2023:i:c:s0264999323003024

DOI: 10.1016/j.econmod.2023.106490

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