Dynamic version of Okun’s law in the EU15 countries—The role of delays in the unemployment‐output nexus

This paper estimates Okun's law in the EU15 countries between 1980 and 2018. It employs different versions with a focus on the dynamic part of the short‐run relationship. We find that the negative relationship between unemployment and output generally holds over time. However, Okun's coefficient varies substantially across countries. The dynamic version can shed light on different country estimates found in the literature. The paper argues that lag effects need to be considered to avoid possible misspecification. A mixed‐lag structure indirectly controls for potential missing explanatory variables such as the role of labour market institutions.