Estimating Okun's Law
This material is replicated on a number of sites as part of the SERC Pedagogic Service Project
Understanding Okun's Law, potential GDP growth and unemployment rate. Practice plotting data, fitting a line (simple linear regression), and computing percentage changes. Interpreting intercept and slope coefficients.
Context for Use
This is appropriate for any undergraduate macroeconomics course: the Principles level, intermediate level or electives.
Description and Teaching Materials
Please see the attached documents for details:
- Detailed student instruction sheet with instructor notes at end (Microsoft Word 37kB Apr12 10)
- Excel file with formatted data and completed assignment (Excel 51kB Mar18 10)
Teaching Notes and Tips
I use the assignment in a laboratory class, taking about 30 minutes. This assignment works fairly smoothly. I give verbal instructions and a demonstration on how to do the assignment but the student instruction sheet provides a back-up. The assignment may be expanded to have students gather and manipulate the data themselves.
Students may hand in the completed spreadsheet with correct interpretation. I also ask questions on exams to interpret a figure depicting results as they appear in the lab assignment.
References and Resources
The data can be found at the Federal Reserve Bank of St. Louis FRED database.