Estimating Okun's coefficient in the Swedish Economy

Abstract

This study takes a look at Okun's law och tries to determine whether or not it is applicable to the Swedish economy. Okun's law is a veri ed statistical relationship between economic growth and unemployment, rst described and popularised by Arthur in the early 1960's. There has been a shortage of studies relating to Okun's law and the Swedish economy in recent years, and this study aims to ll this vacuum with more recent data and new approaches to estimating the coe cients in the relationship. We examine three common versions of Okun's law: a growth version, a gap version and a dynamic version. Our results indicate that it is, to a certain extent, possible to apply the law to the Swedish data, with reservations toward how they are interpreted. An analysis of the regressions that have been run shows that the dynamic version produces the highest explanatory power, whereas the gap version produces the worst predictions.