Does Okun's law also work for nominal (not real) GDP growth?


1 Answer 1


Does Okun's law work at all?

It was an empirical observation of the relationship between unemployment and an estimate of the "output gap" (the relative difference between actual GDP and potential GDP)

To the extent that the relative difference between actual GDP and potential GDP may be the same whether calculated using nominal GDP or real GDP, then the relationship should hold either in both cases or in neither. Otherwise the argument becomes one of saying that the output gap is affected by inflation

  • $\begingroup$ Okuns law is the relationship between percentage change in quarterly unemployment and percentage change in quarterly GDP. Its useful for short run trend analysis. $\endgroup$
    – EconJohn
    Dec 17, 2017 at 16:22
  • $\begingroup$ @EconJohn: Okun's 1962 paper "Potential GDP and its measurement" is, as its title suggests, about potential GDP. He suggested three ways of estimating the gap, one of which was looking at quarterly changes in real GDP, another what he called trial gaps and the third fitted trend and elasticity. He considered all three over the period 1954-1962, and their relationship with unemployment $\endgroup$
    – Henry
    Dec 17, 2017 at 16:38
  • $\begingroup$ Link me to the paper I cant find it. from what I know Okuns law is a stylized macroeconomic fact: researchgate.net/profile/Donald_Freeman/publication/… $\endgroup$
    – EconJohn
    Dec 17, 2017 at 20:08
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    $\begingroup$ @EconJohn web.archive.org/web/20030502204106/http://cowles.econ.yale.edu/… $\endgroup$
    – Henry
    Dec 17, 2017 at 20:17

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