Do Real-Time Okun's Law Errors Predict GDP Data Revisions?

Working Paper No. 13-3
by Michelle L. Barnes, Fabià Gumbau-Brisa, and Giovanni P. Olivei
2013 Series

Using U.S. real-time data, we show that changes in the unemployment rate unexplained by Okun's Law have significant predictive power for GDP data revisions. A positive (negative) error in Okun's Law in real time implies that GDP will be later revised to show less (more) growth than initially estimated by the statistical agency. The information in Okun's Law errors about the true state of real economic activity also helps to improve GDP forecasts in the near term. Our findings add a new dimension to the interpretation of real-time Okun's Law errors, as they show that these errors can convey information other than a change in potential GDP, the equilibrium unemployment rate, or the use of labor's intensive margin.

JEL Classifications: E01, E24, E27, E65

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