A CROSS-COUNTRY COMPARISON OF OKUN COEFFICIENT

In this paper Okun's law is tested for the G7 countries in order to co mpare the responsiveness of unemployment to economic growth. Cyclical unemployment and output are extracted using Harvey's structural time s eries model. Okun's coefficient is estimated by OLS, rolling OLS, and SUR. The coefficient seems to be highest for North America and lowest for Japan, a result that can be explained in terms of differences in l abor market rigidities. The rising absolute value of the coefficients over time indicated by the results of rolling OLS is explained in term s of labor market reform. (C) 1997 Academic Press.