IDEAS home Printed from https://ideas.repec.org/a/fip/fedfel/00014.html

Interpreting deviations from Okun’s Law

Author

Listed:
  • Mary C. Daly
  • John G. Fernald
  • Òscar Jordà
  • Fernanda Nechio

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

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

    Download full text from publisher

    File URL: https://www.frbsf.org/wp-content/uploads/el2014-12.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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.
    3. 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.
    4. Natsuki Arai, 2016. "Evaluating the Efficiency of the FOMC's New Economic Projections," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(5), pages 1019-1049, August.
    5. Roberto Bande & Ángel Martín-Román, 2018. "Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015)," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 41, pages 137-165.
    6. 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.
    7. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2019. "Self-employment and the Okun's law," Economic Modelling, Elsevier, vol. 77(C), pages 253-265.
    8. 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.
    9. Irina SyssoyevaMasson & João Sousa Andrade, 2017. "Are PIIGS so Different? An Empirical Analysis of Demand and Supply Shocks," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(2), pages 189-222, March.
    10. Foroni, Claudia & Furlanetto, Francesco, 2026. "Explaining deviations from Okun’s law," European Economic Review, Elsevier, vol. 182(C).
    11. Early Elias & Helen Irvin & Òscar Jordà, 2014. "Monetary policy when the spyglass is smudged," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    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.
    13. Porras, María Sylvina & Martín-Román, Ángel L., 2017. "Self-employment and Okun’s Law relationship: the Spanish case," MPRA Paper 83292, University Library of Munich, Germany.
    14. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mendieta-Muñoz, Ivan, 2017. "On The Interaction Between Economic Growth And Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 21(4), pages 982-1022, June.
    2. Mendieta-Muñoz, Ivan, 2015. "Is potential output growth falling?," MPRA Paper 68278, University Library of Munich, Germany.
    3. 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.
    4. Costas KARFAKIS & Constantinos KATRAKILIDIS & Eftychia TSANANA, 2014. "Does output predict unemployment? A look at Okun's law in Greece," International Labour Review, International Labour Organization, vol. 153(3), pages 421-433, September.
    5. Saara Tamminen, 2017. "Regional effects or none? Firms' profitability during the Great Recession in Finland," Papers in Regional Science, Wiley Blackwell, vol. 96(1), pages 33-59, March.
    6. Facundo Piguillem & Guillermo Ordonez, 2015. "Retirement in the Shadow (Banking)," 2015 Meeting Papers 1200, Society for Economic Dynamics.
    7. Stephen T. Onifade & Ahmet Ay & Simplice A. Asongu & Festus V. Bekun, 2019. "Revisiting the Trade and Unemployment Nexus: Empirical Evidence from the Nigerian Economy," Research Africa Network Working Papers 19/079, Research Africa Network (RAN).
    8. Elstner, Steffen & Grimme, Christian & Kecht, Valentin & Lehmann, Robert, 2022. "The diffusion of technological progress in ICT," European Economic Review, Elsevier, vol. 149(C).
    9. Revoredo-Giha, Cesar & Leat, Philip M.K. & Renwick, Alan W., 2012. "The relationship between output and unemployment in Scotland: A regional analysis," Working Papers 131465, Scotland's Rural College (formerly Scottish Agricultural College), Land Economy & Environment Research Group.
    10. Deepankar Basu1, Duncan K. Foley, 2011. "WP 2011-4 Dynamics of Output and Employment in the U.S. Economy," SCEPA working paper series. 2011-4, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    11. Anirvan Banerji & Lakshman Achuthan, 2015. "The “Subpar” Recovery: A Long-standing Misunderstanding," Challenge, Taylor & Francis Journals, vol. 58(2), pages 139-148, March.
    12. Alessandro Gavazza & Simon Mongey & Giovanni L. Violante, 2018. "Aggregate Recruiting Intensity," American Economic Review, American Economic Association, vol. 108(8), pages 2088-2127, August.
    13. Jennifer Bruner & Dylan G. Rassier & Kim J. Ruhl, 2018. "Multinational Profit Shifting and Measures throughout Economic Accounts," NBER Chapters, in: Challenges of Globalization in the Measurement of National Accounts, pages 153-205, National Bureau of Economic Research, Inc.
    14. Daniel E. Sichel & J. Christina Wang, 2017. "The equilibrium real policy rate through the lens of standard growth models," Current Policy Perspectives 17-6, Federal Reserve Bank of Boston.
    15. Levin, Andrew T., 2014. "The design and communication of systematic monetary policy strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 52-69.
    16. Janice Eberly & John G. Fernald, 2022. "Jackson Hole 2022 - Reassessing Economic Constraints: Potential Output (The Impact of COVID on Productivity and Potential Output)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, August.
    17. Gordon, Robert J. & Sayed, Hassan, 2020. "Transatlantic Technologies: The Role of ICT in the Evolution of U.S. and European Productivity Growth," CEPR Discussion Papers 15011, Centre for Economic Policy Research.
    18. Menzie Chinn & Laurent Ferrara & Valérie Mignon, 2013. "Post-recession US employment through the lens of a non-linear Okun’s law," Working Papers hal-04141207, HAL.
    19. Robert J. Gordon & Hassan Sayed, 2019. "The Industry Anatomy of the Transatlantic Productivity Growth Slowdown," NBER Working Papers 25703, National Bureau of Economic Research, Inc.
    20. Kushlin, Valery Ivanovich (Кушлин, Валерий Иванович) & Ustenko, V.S. (Устенко, В.С.), 2016. "Analysis of International Experience of Intensification of Scientific and Innovative Activity in the Modern Unstable Conditions [Анализ Международного Опыта Активизации Научно-Инновационной Деятельности В Современных Нестабильных Условиях]," Working Papers 2832, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfel:00014. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.