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 ?
For example, if one believed in Okun's law and a Phillips curve (as in a New Keynesian model), then there should exist a relationship between output's deviation from potential and inflation.
Okun's law states that, as the economy grows, the rate of employment will increase.
Giorgio Canarella and Stephen Miller, in "Did Okun's Law Die After the Great Recession," carefully examine the relationship between output and unemployment.
The first, which we use for the counterfactual output path in figure 1, measures the cycle using the unemployment rate and adjusts the variables in the growth-accounting identity using a version of Okun's law. The second, which we use primarily for our analysis of sources of slow demand growth and the timing of the recovery, is conditioned instead on the state of the economy at the cyclical trough in 2009 to compute a baseline forecast from a dynamic factor model.
The relationship between unemployment and output empirically and theoretically was first discovered and tested by the Arthur Melvin Okun (1962) and known as the Okun's law; which reveals that 3% (increase/decrease) in economic growth would lead to 1% (decrease/increase) in unemployment; a negative variation between unemployment and economic growth.
Kennedy's Council of Economic Advisers, coined Okun's Law, which holds that for every three-point rise in GDP, unemployment will fall 1 percentage point.
Most likely this substitution is prompted by the common technique used in frontier research, which itself is justified by a simple Okun's Law to connect these two metrics.
To arrive at potential, researchers make some adjustments to the natural rate of unemployment and use Okun's law to transform unemployment into output.
economy comes from Okun's Law (named after the late U.S.
The link between the unemployment rate and GDP growth is the so-called Okun's law (see Knoteck, 2007, also in relation to the estimation methods).
The fifth paper, by Mary Daly, John Fernald, Oscar Jorda and Fernanda Nechio, assesses cross-country evidence on labour market performance following the financial crisis through the lens of Okun's Law, the relationship between changes in the unemployment rate and output growth.
Okun's law revisited: should we worry about low unemployment, Economic Commentary 15: 1-4.