Research Discussion Paper – RDP 2015-14 Okun's Law and Potential Output Abstract

We find that Okun's law provides a simple and accurate means of understanding and predicting changes in the unemployment rate in Australia. Okun's law also implies a rate of output growth consistent with stable unemployment, called the growth of potential output. Our estimates of potential output growth are imprecise and fluctuate over time. A recent estimate is a bit below 3 per cent a year, with a +/− one standard error band covering the range 2¼ to 3¾ per cent. This is a percentage point or two below estimates from before the mid 1990s.