Re-evaluating Okun’s Law: Why all recessions and recoveries are “different”

This paper explores the relationship between GDP growth, the unemployment rate and employment growth. Using a structural DSGE model and a data-rich estimation approach I am able to estimate the coefficients and correlations between GDP growth and unemployment rate changes, GDP growth and overall employment growth as well as GDP growth and employment growth by sector. I find equivalent estimates when I compare the simulated model with realized data. I then evaluate the effect different types of economic shocks have on these correlations and I find that investment and finance shocks have larger effects on employment growth and the unemployment rate when compared to productivity and other supply-side shocks.