Okun’s Law, V/U and the fiscal multiplier

Jerome Creel and Jonas Kaiser ()

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Abstract: This paper investigates the stabilization property of fiscal policy by revisiting the notion of potential output via the use of Okun's Law including the vacancy-to-unemployment ratio (V/U) to proxy economic slack. We propose new measures of the US fiscal stance based on observable data and transparent targets. Our results suggest that the US actually had a more conservative fiscal stance than official data indicate. This paper also examines fiscal multipliers, which are larger when V/U, rather than the unemployment rate, is used as measure of economic slack. We find that state-dependence of fiscal multipliers is as sensitive to thresholds for bad years than to the slack measure employed in Okun's Law.

Keywords: PIB potentiel; Okun; vacancy to unemployment ratio; fiscal multiplier; state-dependence (search for similar items in EconPapers)
Date: 2024-11
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04814694v1
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Working Paper: Okun’s Law, V/U and the fiscal multiplier (2024)
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