Prague Economic Papers 2019, 28(2):235-254 | DOI: 10.18267/j.pep.694

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

Marcel Novák1, Ľubomír Darmo2
1 Faculty of National Economy, University of Economics in Bratislava, Slovakia (marcel.novak@euba.sk)
2 Faculty of National Economy, University of Economics in Bratislava, Slovakia (lubomir.darmo@euba.sk)

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, unemployment, Okun's law,
JEL classification: E24, E32

Accepted: April 23, 2018; Published: April 1, 2019  Show citation

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Novák, M., & Darmo, Ľ. (2019). Okun´s Law over the Business Cycle: Does it Change in the EU Countries after the Financial Crisis? Prague Economic Papers, 28(2), 235-254. doi: 10.18267/j.pep.694
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