Using data from the St. Louis Federal Reserve
(http://research.stlouisfed.org/fred2/), analyze
the relationship between the output gap and
cyclical unemployment.
a. Download quarterly data on nominal GDP
(GDP), nominal potential GDP (NGDPPOT),
the unemployment rate (UNRATE), and the
natural rate of unemployment (NROU) for
the most recent quarter. Use the data to
calculate the output gap.
b. Based on the GDP gap that you found in (a),
what does Okun’s law indicate that the value of
cyclical unemployment was in the most recent
quarter?
c. Calculate the cyclical unemployment rate.
How well did Okun’s law do at estimating this
value?