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Do real-time Okun's law errors predict GDP data revisions?

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  • Michelle L. Barnes
  • Fabià Gumbau-Brisa
  • Giovanni P. Olivei

Abstract

Using U.S. real-time data, we show that changes in the unemployment rate unexplained by Okun's Law have significant predictive power for GDP data revisions. A positive (negative) error in Okun's Law in real time implies that GDP will be later revised to show less (more) growth than initially estimated by the statistical agency. The information in Okun's Law errors about the true state of real economic activity also helps to improve GDP forecasts in the near term. Our findings add a new dimension to the interpretation of real-time Okun's Law errors, as they show that these errors can convey information other than a change in potential GDP, the equilibrium unemployment rate, or the use of labor's intensive margin.

Suggested Citation

  • Michelle L. Barnes & Fabià Gumbau-Brisa & Giovanni P. Olivei, 2013. "Do real-time Okun's law errors predict GDP data revisions?," Working Papers 13-3, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:13-3
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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.
    2. Owyang, Michael T. & Sekhposyan, Tatevik, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
    3. Padula, Mario & Backé, Peter, 2003. "Inflation dynamics and subjective expectations in the United States," Working Paper Series 222, European Central Bank.
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    Citations

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    Cited by:

    1. Rui M. Pereira, 2013. "Okun's Law across the Business Cycle and during the Great Recession: A Markov Switching Analysis," Working Papers 139, Department of Economics, College of William and Mary.
    2. Ball, Laurence & Jalles, João Tovar & Loungani, Prakash, 2015. "Do forecasters believe in Okun’s Law? An assessment of unemployment and output forecasts," International Journal of Forecasting, Elsevier, vol. 31(1), pages 176-184.
    3. Stefanescu, Răzvan & Dumitriu, Ramona, 2015. "Creşterea economică a României între 1980 şi 2013
      [The Economic Growth of Romania between 1980 and 2013]
      ," MPRA Paper 61592, University Library of Munich, Germany.

    More about this item

    Keywords

    Unemployment ; Gross domestic product;

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