Re-evaluating Okun’s Law: Why all recessions and recoveries are “different”

Sacha Gelfer

Economics Letters, 2020, vol. 196, issue C

Abstract: This paper explores the relationship between GDP growth, the unemployment rate and employment growth. Using a structural DSGE model and a data-rich estimation approach I am able to estimate the coefficients and correlations between GDP growth and unemployment rate changes, GDP growth and overall employment growth as well as GDP growth and employment growth by sector. I find equivalent estimates when I compare the simulated model with realized data. I then evaluate the effect different types of economic shocks have on these correlations and I find that investment and finance shocks have larger effects on employment growth and the unemployment rate when compared to productivity and other supply-side shocks.

Keywords: Okun’s Law; DSGE-DFM; Financial recessions; Data-rich DSGE (search for similar items in EconPapers)
JEL-codes: E17 E24 E32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303050

DOI: 10.1016/j.econlet.2020.109497

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