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2002•RePEc: Research Papers in EconomicsOpen access

Output trends and Okun's law

Gert Schnabel

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Abstract

This paper estimates trend growth rates for a sample of industrial countries by applying Okun's law in first differences. Despite the simplicity of the approach and the restrictive assumptions, the method typically yields reasonable results when trend shifts in the Okun coefficients and changes in structural unemployment are allowed for. Particular caution is required in using the method for estimating output gaps.

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This paper estimates trend growth rates for a sample of industrial countries by applying Okun's law in first differences. Despite the simplicity of the approach and the restrictive assumptions, the method typically yields reasonable results when trend shifts in the Okun coefficients and changes in structural unemployment are allowed for. Particular caution is required in using the method for estimating output gaps.

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Available abstract

This paper estimates trend growth rates for a sample of industrial countries by applying Okun's law in first differences. Despite the simplicity of the approach and the restrictive assumptions, the method typically yields reasonable results when trend shifts in the Okun coefficients and changes in structural unemployment are allowed for. Particular caution is required in using the method for estimating output gaps.

Key concepts: Okun's law, Unemployment, Economics, Econometrics, Sample (material), Simplicity, Output gap, Unemployment rate

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