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Testing Okun's law on different frequencies: Reconstructing monthly unemployment and GDP for Sweden 1913–2014
Stockholm University, Faculty of Social Sciences, Department of Economic History and International Relations.ORCID iD: 0000-0002-4718-6434
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper presents an analysis on the relation between unemployment and GDP, famously observed by Okun (1962). Three versions of the law is estimated, using monthly, quarterly, annual and 5-year observations for Sweden 1913–2014: the difference version (unemployment change and real GDP growth), the dynamic version with lags, and the gap version (unemployment and GDP deviations from trends). I find a robust, statistically significant, negative relation between real GDP growth and unemployment, as well as deviation from trends, but with heterogeneous results over frequencies. The difference and dynamic version of Okun's law indicate that an increase of 1 percent annual or 5-year real GDP growth coincides with a 0.1 to 0.19 percentage point decrease in the unemployment rate. Results for monthly and quarterly data are close to zero. A one percent positive deviation of GDP growth from the trend corresponds with a negative deviation for unemployment from the trend with 0.03, 0.03 and 0.09 percentage point for monthly, quarterly and annual data, respectively. Rolling regressions using 13 years of data per sub sample indicate that the correlation between GDP and unemployment is robust for annual data during most of the time period, and not statistically significant for most periods using monthly and quarterly data. The monthly data on unemployment and GDP used for the analysis is estimated through temporal disaggregation of quarterly GDP and annual unemployment.

Keywords [en]
Monthly GDP, Quarterly GDP, temporal disaggregation, Okun's law. JEL: E32, E37
National Category
Economic History
Research subject
Economic History
Identifiers
URN: urn:nbn:se:su:diva-177229OAI: oai:DiVA.org:su-177229DiVA, id: diva2:1380462
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133Ragnar Söderbergs stiftelseAvailable from: 2019-12-18 Created: 2019-12-18 Last updated: 2019-12-19Bibliographically approved
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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • vancouver
  • Other style
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  • de-DE
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