Okun's Law


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Okun's Law

A theory stating that for every 1% increase in the unemployment rate, a country or region loses 2.5% potential GDP growth. See also: GDP.
References in periodicals archive ?
Similar to other cross-country studies (see, for example, Hutengs and Stadtmann, 2013; Sogner and Stiassny, 2002; Lee, 2000; Moosa, 1997), the Okun coefficients are negative across all countries and age cohorts, confirming Okun's law.
In this note, we summarise a few key cross-country differences using the perspective of Okun's Law.
This idea is based on an empirical relationship sometimes referred to as Okun's law, which is essentially a simple rule of thumb that associates the growth rate in real GDP to changes in the unemployment rate observed around the same time.
Or, in technical terms familiar to economic readers, the Okun's law relationship has a positive residual when unemployment is on (he left-hand side of the equation.
I argue that issues of econometric identification limit the confidence with which we can approach the CBO estimates; I argue against the widespread use of deterministic time trends, particularly in the real-time context; and I question the uncritical application of Okun's law.
The present paper contributes to the understanding to the functioning of the labor market in the city of Posadas, Misiones, Argentine Republic, and has as its objective to measure the relationship between the growth of the GGP of the Province of Misiones and the growth of unemployment in the same Province, by means of the use of the relationship known as of Okun's Law, using a dynamic specification.
1) Okun's Law has proved to be one of the more durable relationships in modern macroeconomics, and is now often presented as an element of core beliefs, as in textbooks by Hall and Taylor (1993, 77) and in policy discussions by Blinder (1997).
TIE: Economist Paul Krugman recently gave a speech, which argued that the economics profession used to have two reliable pillars of strength -- Okun's Law and the NAIRU.
The widely accepted connection of Okun's law to inflation can be better understood by noting that the unemployment/output relationship was more precisely considered by Okun as relating percentage deviations of output from its potential level to deviations of the unemployment rate from its "natural" level.
Okun's law relates changes in unemployment to changes in output or the output gap.
A historical pattern, referred to as Okun's law, posits that there is an inverse relationship between changes in the unemployment rate and GDP growth, with year-over-year GDP growth moving twice as fast as the change in the unemployment rate.