Okun’s law links changes in economic output and unemployment through an estimated relationship.
Okun's Law Calculator
Results
Trend growth rate (Y*)
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Output gap (Okun gap,Ỹ)
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Table of Contents
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What is Okun's Law?
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How to Use This Calculator
- Enter or select Unemployment rate (U), Natural rate of unemployment (U*), Okun coefficient (β), Actual GDP growth rate (Y).
- Check the unit beside each measurement. For a percentage or rate, use the scale and time period stated in the form.
- Choose Calculate, then compare the output with the formula and example below. If you change a value or option, calculate again to update the result.
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Formula Used
Output gap ≈ −β × (unemployment−natural unemployment)
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Variables Explained
| Input | What it means |
|---|---|
| Unemployment rate (U) | The stated rate or percentage, entered using the scale and time period shown in the form. |
| Natural rate of unemployment (U*) | The stated rate or percentage, entered using the scale and time period shown in the form. |
| Okun coefficient (β) | Use the measured or stated value for this item, with the unit or category shown beside the field. |
| Actual GDP growth rate (Y) | The stated rate or percentage, entered using the scale and time period shown in the form. |
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Worked Example
With β=2 and unemployment 2 percentage points above its natural rate, the modeled output gap is −4%.
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Why Use This Calculator?
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
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Common Mistakes
- Gap and growth versions use different equations. The coefficient is empirical, not a universal constant.
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Frequently Asked Questions
Should I use monthly or annual figures?
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Does the result include fees and tax?
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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Sources & References
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