Prague Economic Papers Vol. 28 No. 2

Okun´s Law over the Business Cycle: Does it Change in the EU Countries after the Financial Crisis?

DOI: https://doi.org/10.18267/j.pep.694

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Marcel Novák, Ľubomír Darmo

The relationship between economic growth and unemployment is well known. The growth of gross domestic product leads to a fall in unemployment and, reversely, its fall is associated with a rise in unemployment. The paper deals with the estimation of Okun’s coefficient for EU28 countries between years 2001 and 2014. Additionally, two sub-periods are also analysed. These represent the pre-crisis period 2001–2007 and the post-crisis period 2008–2014. The result shows higher Okun’s coefficient in the post-crisis period. Unemployment in that period responded to changes in gross domestic product more sensitively than in the pre-crisis period. As a result, in order to decrease unemployment, lower economic growth was necessary in the post-crisis period compared to the pre-crisis one.

Keywords: business cycle, Okun’s law, unemployment

JEL Classification: E24, E32

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