Data Okun's Law USA

The article investigates the impact of the COVID-19 pandemic on the fulfillment of Okun’s Law across U.S. states. More specifically, it evaluates whether the strengthening of Okun’s law in the United States, as highlighted by Russnak et al. (2023) and confirmed in our analysis, followed a common pattern among states or whether it was more dependent on each state’s unique response. The United States provides a particularly relevant case study due to the notable variation in responses across states to the pandemic (see, e.g., Rickman and Wang, 2024), a degree of divergence not observed to the same extent in European countries.

I employ a heterogeneous panel approach (Mean Group estimator) while also addressing cross-sectional dependence (Augmented Mean Group estimator) to uncover the effect of the pandemic on Okun’s coefficients in a first stage. In the second stage, I use Weighted Least Squares to get precise estimates on the relationship between the intensity of restrictions and the strengthening of Okun’s Law. The findings reveal a positive connection between these two variables, and this conclusion holds robust across multiple approaches.