Do Wall Street economists believe in Okun’s Law and the Taylor Rule?

Abstract

We use data from the Wall Street Journal’s semi-annual survey of professional economists to test whether individual economists’ six-month-ahead predictions of real GDP growth, unemployment, short-term interest rates and inflation reflect Okun’s Law and the Taylor Rule. We conclude the economists believe real growth is less responsive to unemployment-rate changes than the textbook version of Okun’s Law; we also find the economists believe the Federal Reserve sets short-term interest rates by placing more weight on unemployment and less weight on inflation than the Taylor Rule prescribes.