Help correctly interpreting my OLS regression

[Karon Bagdanov]

hey guys my professor was telling me i've had trouble in the past correctly interpreting my results, could someone help me out in letting me the textbook or correct way of interpreting my regression



the dependent variable is just the U.S. Unemployment rate

and lagged RGDP is the change in the Real GDP from the previous year

if i want to figure out for a 1% decrease in UNRATE how much the RGDP needs to go up, can i just divide 1 by .476 or is this not what my model does?

i'm trying to compare my model's results to Okun's law (relationship: 1% decrease in unemployment rate, 2.5% increase in RGDP)

would i have to interpret it as 2.5 * .476 = a 1.19% decrease in the unemployment rate instead?

[Jorrit Gosens]

I'd say you have your variables backwards. RGDP would be more logically used as the dependent variable. Unemployment causes reduced GDP (or reduced GDP increases).
Also, use of the term 'lagged' here is confusing. A lagged variable means taking the value of that variable from the previous year, not the increase from this year compared to previous. Also note that Okun's law does not connect current levels of unemployment to GDP or GDP changes. It connects changes in unemployment to changes in GDP. You should make the same transformation on UNRATE as you did on GDP.

Mathematically, your interpretation of the relation between the two variables is correct, but it is not an estimation of Okun's law. For that you should swap RGDP and UNRATE in your model, and use annual differences for both.