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Interpreting deviations from Okun’s Law

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  • Daly, Mary C.

    ()
    (Federal Reserve Bank of San Francisco)

  • Fernald, John G.

    ()
    (Federal Reserve Bank of San Francisco)

  • Jorda, Oscar

    ()
    (Federal Reserve Bank of San Francisco)

  • Nechio, Fernanda

    ()
    (Federal Reserve Bank of San Francisco)

Abstract

The traditional relationship between unemployment and output growth known as Okun’s law appeared to break down during the Great Recession. This raised the question of whether this rule of thumb was still meaningful as a forecasting tool. However, recent revisions to GDP data show that its relation with unemployment followed a fairly typical cyclical pattern compared with past deep recessions and slow recoveries. The comparatively common patterns suggest that rumors of the death of Okun’s law during the Great Recession were greatly exaggerated.

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Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

Volume (Year): (2014)
Issue (Month): ()
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Handle: RePEc:fip:fedfel:00014

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  1. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
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Cited by:
  1. John Fernald, 2014. "Productivity and Potential Output Before, During, and After the Great Recession," NBER Working Papers 20248, National Bureau of Economic Research, Inc.

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