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Okun's Law

Authors: Crespo Cuaresma J

Publication Year: 2008

Reference: In: S.N. Durlauf and L.E. Blume (eds), The New Palgrave Dictionary of Economics, Second Edition. Palgrave Macmillan, Basingstoke, UK (2008)

Abstract

Okun's law describes the empirical relationship between changes in unemployment and output at the macroeconomic level and has been regarded since its discovery by Arthur Okun (1962) as a building block of traditional macroeconomic models. This article discusses the interpretation of this relationship and summarizes recent developments in the econometric specification of Okun's law.
KEYWORDS: Aggregate demand; Demand and supply shocks; Okun's coefficient; Okun's law; Output gap; Phillips curve; Production functions; Unemployment