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Interpreting deviations from Okun’s Law


  • 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)


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.

Suggested Citation

  • Daly, Mary C. & Fernald, John G. & Jorda, Oscar & Nechio, Fernanda, 2014. "Interpreting deviations from Okun’s Law," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfel:00014

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    References listed on IDEAS

    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. Elva Bova & Christina Kolerus & Sampawende Tapsoba, 2015. "A fiscal job? An analysis of fiscal policy and the labor market," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-17, December.
    2. Amy Guisinger & Ruben Hernandez-Murillo & Michael Owyang & Tara Sinclair, 2015. "A State-Level Analysis of Okun's Law," Working Papers 2015-17, The George Washington University, Institute for International Economic Policy.
    3. Porras, María Sylvina & Martín-Román, Ángel L., 2017. "Self-employment and Okun’s Law relationship: the Spanish case," GLO Discussion Paper Series 157, Global Labor Organization (GLO).
    4. Durech, Richard & Minea, Alexandru & Mustea, Lavinia & Slusna, Lubica, 2014. "Regional evidence on Okun's Law in Czech Republic and Slovakia," Economic Modelling, Elsevier, vol. 42(C), pages 57-65.
    5. Sánchez-Fung, José R., 2015. "Producto, desempleo y la Ley de Okun en la República Dominicana
      [Output, unemployment and Okun’s law in the Dominican Republic]
      ," MPRA Paper 63656, University Library of Munich, Germany.
    6. John G. Fernald, 2015. "Productivity and Potential Output before, during, and after the Great Recession," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 1-51.
    7. repec:voj:journl:v:64:y:2017:i:2:p:189-222 is not listed on IDEAS
    8. Elias, Early & Irvin, Helen & Jorda, Oscar, 2014. "Monetary policy when the spyglass is smudged," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    9. repec:eee:regeco:v:68:y:2018:i:c:p:239-248 is not listed on IDEAS
    10. John G. Fernald & J. Christina Wang, 2016. "Why Has the Cyclicality of Productivity Changed? What Does It Mean?," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 465-496, October.
    11. Bande, Roberto & Martín-Román, Ángel L., 2017. "Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015)," MPRA Paper 79833, University Library of Munich, Germany.
    12. Milen V. Velev, 2014. "A Research on the Relationship between the Real Aggregate Output and the Unemployment Rate in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 58-91.

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