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An unstable Okun’s Law, not the best rule of thumb

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  • Brent Meyer
  • Murat Tasci

Abstract

Okun?s law is a statistical relationship between unemployment and GDP that is widely used as a rule of thumb for assessing the unemployment rate?why it might be at a certain level or where it might be headed, for example. Unfortunately, the Okun?s law relationship is not stable over time, which makes it potentially misleading as a rule of thumb.

Suggested Citation

  • Brent Meyer & Murat Tasci, 2012. "An unstable Okun’s Law, not the best rule of thumb," Economic Commentary, Federal Reserve Bank of Cleveland, issue June.
  • Handle: RePEc:fip:fedcec:y:2012:i:june7:n:2012-8
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    Citations

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    Cited by:

    1. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    2. Michael Christl & Monika Köppl-Turyna & Dénes Kucsera, 2017. "Okun's Law in Austria," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 2, pages 97-110, June.
    3. Luz A. Flórez & Karen L. Pulido-Mahecha & Mario A. Ramos-Veloza, 2018. "Okun´s law in Colombia: a non-linear cointegration," Borradores de Economia 1039, Banco de la Republica de Colombia.
    4. Obst, Thomas, 2019. "A dynamic version of Okun's law in the EU15 countries - The role of delays in the unemployment-output nexus," Discussion Papers 411, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    5. Pham, Binh Thai & Sala, Hector, 2019. "Government Deficit Shocks and Okun's Coefficient Volatility: New Insights on the Austerity versus Growth Debate," IZA Discussion Papers 12492, Institute of Labor Economics (IZA).
    6. de la Fonteijne, Marcel R., 2014. "Okun's Law, Dead or Alive: A Fundamental Approach," MPRA Paper 83911, University Library of Munich, Germany.
    7. Pär Österholm, 2016. "Time variation in Okun’s law in Sweden," Applied Economics Letters, Taylor & Francis Journals, vol. 23(6), pages 436-439, April.
    8. Anderton, Robert & Aranki, Ted & Bonthuis, Boele & Jarvis, Valerie, 2014. "Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment," Working Paper Series 1747, European Central Bank.
    9. Albers, Scott, 2013. "Okun’s Law as a Pi-to-1 ratio: A harmonic / trigonometric theory as to why Okun’s Law works," MPRA Paper 46633, University Library of Munich, Germany.
    10. Laurence M. Ball & Daniel Leigh & Prakash Loungani, 2013. "Okun's Law: Fit at Fifty?," NBER Working Papers 18668, National Bureau of Economic Research, Inc.
    11. Vladimir ArÄ abić & Eric Olson, 2019. "Estimates of Okun's law using a new output gap measure," Economics Bulletin, AccessEcon, vol. 39(2), pages 929-936.
    12. Milen Velev, 2018. "Unemployment and economic growth: Is there a relationship in the European Union?," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2018(4), pages 12-29.
    13. Samuel Huber & Jaehong Kim & Alessandro Marchesiani, 2019. "Unemployment and the demand for money," ECON - Working Papers 324, Department of Economics - University of Zurich.

    More about this item

    Keywords

    Unemployment; Gross domestic product;

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