Okun's Law amidst Crisis: Analyzing Morocco's Experience during COVID-19

Abstract

Our study delves into the far-reaching impact of the COVID-19 pandemic on Morocco's economic growth and labor market. Our investigation centers on the examination of Okun's law, to assess the validity of this law in the context of Morocco, we employ both traditional OLS and an M-robust estimator. By comparing estimates before and after incorporating statistical observations associated with the COVID-19 pandemic, we gain valuable insights into how this unprecedented global crisis has affected the country's labor market dynamics, and within a rolling regression framework, we explore the stability (or lack thereof) of Okun's coefficient over time. This dynamic approach allows us to capture the evolving relationship between economic growth and unemployment during different phases of the business cycle. Our research substantiates the validity of Okun's law in the Moroccan context, indicating that the well-established principle continues to hold significance. However, our findings also reveal a noteworthy aspect - the instability of the Okun's coefficient over time in Morocco. This instability suggests that the association between changes in unemployment and economic growth in the country is subject to shifts and fluctuations, likely influenced by various economic and policy factors. One crucial discovery from our study is the identification of asymmetries in the trends and shocks associated with the magnitude of the Okun's coefficient. Specifically, when accounting for the most recent major economic slowdown caused by the COVID-19 pandemic, we observe distinct patterns that deviate from the norm. This insight can provide critical information for policymakers and economists in devising targeted strategies to address unemployment concerns during challenging economic times.