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Do IMF forecasts respect Okun’s law? Evidence for advanced and developing economies

Author

Listed:
  • An, Zidong
  • Ball, Laurence
  • Jalles, Joao
  • Loungani, Prakash

Abstract

This paper provides an assessment of the IMF’s unemployment forecasts, which have not received much scrutiny to date. The focus is on the internal consistency of the IMF’s growth and unemployment forecasts, and specifically on seeing whether the relationship between the two is consistent with the relationship in the data, i.e., with Okun’s Law. We find that the average performance is good, in the sense that the relationship between growth and unemployment forecasts is fairly comparable to that which prevails in the data: on average, the Okun coefficient in the forecasts mirrors the Okun coefficient in the data. Nevertheless, there is room for improvement, particularly in the year-ahead forecasts and for the group of middle-income countries. We show that a linear combination of Okun-based unemployment forecasts and WEO unemployment forecasts can deliver significant gains in forecast accuracy for developing economies.

Suggested Citation

  • An, Zidong & Ball, Laurence & Jalles, Joao & Loungani, Prakash, 2019. "Do IMF forecasts respect Okun’s law? Evidence for advanced and developing economies," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1131-1142.
  • Handle: RePEc:eee:intfor:v:35:y:2019:i:3:p:1131-1142
    DOI: 10.1016/j.ijforecast.2019.03.001
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