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Federal Reserve Bank of St. Louis
A State-Level Analysis of Okun's Law
Okun's law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential. This relationship is often referred to by policy makers and used by forecasters. In this paper, we estimate Okun's coefficients separately for each U.S. state using an unobserved components framework and find variation of the coefficients across states. We exploit this heterogeneity of Okun's coefficients to directly examine the potential factors that shape Okun's law, and find that indicators of more flexible labor markets (higher levels of education achievement in the population, lower rate of unionization, and a higher share of non-manufacturing employment) are important determinants of the differences in Okun's coefficient across states.
Cite this item
Amy Y. Guisinger & Ruben Hernandez-Murillo & Michael T. Owyang & Tara M. Sinclair, A State-Level Analysis of Okun's Law, Federal Reserve Bank of St. Louis, Working Papers 2015-29, 08 Sep 2015, revised 17 Oct 2017.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
Keywords: Correlated unobserved components; potential output; natural rate of unemployment
This item with handle RePEc:fip:fedlwp:2015-029
is also listed on EconPapers
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