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We are grateful to Paul Beaudry, Olivier Blanchard, Dan Citrin, Mai Chi Dao, Davide Furceri, Michael Goldby, Pierre-Olivier Gourinchas, Juan Jimeno, Ayhan Kose, Akito Matsumoto, and seminar participants at the 2012 IMF Annual Research Conference for helpful comments and suggestions. Jair Rodriguez provided excellent research assistance. We would like also to thank Shanti Karunaratne for excellent editorial assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy.
For all our regressions, we report ordinary least squares (OLS) standard errors. It is not clear whether robust standard errors are more reliable for our samples, many of which are small. In any case, we have also computed robust standard errors and they are generally close to the OLS standard errors.
When data for 2009 were released, a number of observers suggested that unemployment was significantly above the level implied by Okun’s Law. Subsequently, this anomaly disappeared because output data for 2009 were revised downward (Elsby et al., 2011).
In this exercise, we include 1948-1949 in the decade of the 1950s and 2010-2011 in the decade of the 2000s. Authors including Meyer and Tasci, Owyang and Sepkhposyan (2012), and Daly et al. (2012) use rolling regressions to argue that Okun’s Law is unstable over time. Our findings suggest that time-variation in the estimated Okun coefficient is not statistically significant. Future work could compare our results to rolling regressions in more detail.
For the same sample, a regression of the actual four-quarter change in Ut on the actual change in Yt yields a coefficient estimate of –0.37 (standard error = 0.04).
The 1965Q4 vintage data is the earliest vintage of data for real GNP/GDP available from the Federal Reserve Bank of Philadelphia Real-Time Data Set for Macroeconomists (http://www.philadelphiafed.org/research-and-data/real-time-center/real-time-data/data-files/ROUTPUT/). The results are similar if we use the 1948Q2-1960Q4 sample and current (revised) data.
We present results for OECD data based on national definitions of unemployment. The results are similar when we use the OECD’s harmonized unemployment series.
We estimate the Okun coefficient for each country with OLS. The results are similar if we estimate the coefficients jointly in a panel framework with Seemingly Unrelated Regressions (SUR).
For New Zealand, the EPL index is available over 1990-2008. We also find no relationship between the Okun coefficient and the various components of the EPL index.