Do real-time Okun's law errors predict GDP data revisions?
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.
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- Klaus Adam & Mario Padula, 2002.
"Inflation Dynamics and Subjective Expectations in the United States,"
CSEF Working Papers
78, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 02 Jun 2009.
- Klaus Adam & Mario Padula, 2011. "Inflation Dynamics And Subjective Expectations In The United States," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 13-25, 01.
- Adam, Klaus & Padula, Mario, 2003. "Inflation dynamics and subjective expectations in the United States," Working Paper Series 0222, European Central Bank.
- 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.
- 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.
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