Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269106 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2699
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Despite its stability over time, as for any statistical relationship, Okun's law is subject to deviations that can be large at times. In this paper, we provide a mapping between residuals in Okun's regressions and structural shocks identified with a SVAR model by inspecting how unemployment responds to the state of the economy. We show that deviations from Okun's law are a natural and expected outcome once one takes a multi-shock perspective, as long as shocks to automation, labour supply and structural factors in the labour market are taken into account. Our simple recipe for policy makers is that, if a positive deviation from Okun's law arises, it is likely to be generated by either positive labour supply or automation shocks or by negative structural factors shocks.
Subjects: 
Okun&#x2019
s law
labour markets
Business cycle fluctuations
Bayesian VAR
JEL: 
E24
E32
C32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5284-2
Document Type: 
Working Paper

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