Interpreting deviations from Okun’s Law

Mary Daly, John Fernald (), Oscar Jorda and Fernanda Nechio

FRBSF Economic Letter, 2014

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.

Date: 2014
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