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Federal Reserve Bank of Boston
Working Papers
Do real-time Okun's law errors predict GDP data revisions?
Michelle L. Barnes
Fabià Gumbau-Brisa
Giovanni P. Olivei
Abstract

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.


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Michelle L. Barnes & Fabià Gumbau-Brisa & Giovanni P. Olivei, Do real-time Okun's law errors predict GDP data revisions?, Federal Reserve Bank of Boston, Working Papers 13-3, 2013.
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Keywords: Unemployment ; Gross domestic product
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