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Interpreting deviations from Okun’s Law

Author

Listed:
  • 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.

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
    as

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    File URL: http://www.frbsf.org/economic-research/publications/economic-letter/2014/april/okun-law-deviation-unemployment-recession/el2014-12.pdf
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    References listed on IDEAS

    as
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

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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. 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.
    3. 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.
    4. Guisinger, Amy Y. & Hernandez-Murillo, Ruben & Owyang, Michael T. & Sinclair, Tara M., 2018. "A state-level analysis of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 239-248.
    5. 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).
    6. 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.
    7. 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.
    8. 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.
    9. Elias, Early & Irvin, Helen & Jorda, Oscar, 2014. "Monetary policy when the spyglass is smudged," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    10. 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.
    11. repec:voj:journl:v:64:y:2017:i:2:p:189-222 is not listed on IDEAS

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