Okun’s law applied to different countries in different continents : Does the method of estimation affect Okun’s coefficient?

Sammanfattning: This study tests if Okun’s law can be used applied to several countries in different continents from the year 1991-2020. This is done with Okun's gap model to calculate Okun's coefficient, that test percentage decrease in output when unemployment rate increases above natural level. In order to use this model, one must calculate potential production and natural rate of unemployment. To test if different methods of calculation will affect the coefficient, natural rate of unemployment potential output are calculated with two different methods, linear and fitted trend line. The result of this study showed that continents with most developing countries showed significant coefficients when natural rate of unemployment and potential output are estimated with linear trendline, while continents with predominantly developed countries showed significant coefficients with the fitted estimation trend line. In conclusion, Okun's law can be applied to the majority of tested countries and the method used can give different results.