Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

We’ve had an error in Okun’s law in the levels relationship between the output gap and the unemployment rate gap. The predominant explanation for what you’re talking about is that we have the relationship between the output gap and the difference between the unemployment rate and the NAIRU coming back into normal alignment. Let me try to put that into English. At the moment we have an output gap that we think is just closed, but we have an unemployment rate that is below the NAIRU. That alignment is not normal. Even if the output gap just stayed where it is right now, we would expect the unemployment rate–NAIRU combination on average to come back into normal alignment. So we would get some lift in the unemployment rate just out of that, as that abnormal alignment works out of the system.

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