The Unassuming Economist

In a new paper, authors Eiji Goto and Constantin Burgi analyze the Okun’s law through sectoral and cross-country differences. The specific value add to existing research, according to the authors, is as follows:

“We contribute to the literature on cyclical differences by determining which category the Okun’s coefficient falls in. Specifically, we test whether the aggregate differences disappear if the sector sizes are the same across countries (e.g. if manufacturing has the same share of GDP for all countries) and we find that this can be rejected. We also examine whether all of the sectoral coefficients are proportional and we find that we cannot reject this. Next, we inspect whether any sector’s coefficient is the same as the aggregate’s and we find that this can also be rejected. Lastly, we decompose the Okun’s coefficient to determine whether the correlation between unemployment or the standard deviations of unemployment or GDP are driving the differences. We find that the standard deviation of unemployment is the main driver”