Okun's Law and the asymmetric and changing cyclical behaviour of the USA economy

Abstract

This article examines the impact of the changing composition of the USA economy on Okun's Law. The article begins by reformulating Okun's Law to take account of the asymmetric nature of the USA business cycle, and estimates of the reformulated model confirm a break in the Okun coefficient around 1974. The principal findings are that the Okun coefficient has increased, and that the cycle has become more asymmetric. These changes are due to changes in the pattern of employment growth which has become more cyclically sensitive, and to a change in female labour supply behaviour which is now less affected by downturns.

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