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Measuring the UK short-run NAIRU

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Author Info
Nicoletta Batini
Jennifer V. Greenslade

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Abstract

This paper derives alternative measures of the short-run NAIRU (SRN) for the United Kingdom, the rate for unemployment at which inflation will neither increase nor decrease in the short-run. We estimate the NAIRU jointly with price equations by using the Kalman filter. Our work suggests that both structural changes in the labour market and favourable supply shocks may have had a beneficial impact on RPIX inflation over the last few years. We show that deviations of unemployment from the short-run NAIRU measures prove helpful in explaining inflation and we demonstrate their usefulness in constructing Taylor-type policy rules for the interest rate. Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpi037
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 58 (2006)
Issue (Month): 1 (January)
Pages: 28-49
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Handle: RePEc:oup:oxecpp:v:58:y:2006:i:1:p:28-49

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arturo Estrella, 1997. "Aggregate supply and demand shocks: a natural rate approach," Research Paper 9739, Federal Reserve Bank of New York. [Downloadable!]
  2. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Economics Department. [Downloadable!]
  3. Laurence Boone, 2000. "Comparing Semi-Structural Methods to Estimate Unobserved Variables: The HPMV and Kalman Filters Approaches," OECD Economics Department Working Papers 240, OECD Economics Department. [Downloadable!]
  4. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  5. Gordon, Robert J, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter. [Downloadable!] (restricted)
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  6. Layard, Richard & Bean, Charles, 1989. " Why Does Unemployment Persist?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 91(2), pages 371-96.
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  7. Ricardo Mestre & Silvia Fabiani, 2000. "Alternative measures of the NAIRU in the Euro area: estimates and assessment," Working Paper Series 17, European Central Bank. [Downloadable!]
  8. Robert J. Gordon, 1999. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," NBER Reprints 2240, National Bureau of Economic Research, Inc.
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  9. Katharine Neiss & Edward Nelson, 2002. "Inflation dynamics, marginal cost, and the output gap: evidence from three countries," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
  10. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
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  11. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39, pages 195-214, December. [Downloadable!] (restricted)
  12. Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, . "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers 179, Bank of England. [Downloadable!]
  13. Staiger, Douglas & Stock, James H & Watson, Mark W, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter. [Downloadable!] (restricted)
  14. Attfield, Clifford L. F. & Silverstone, Brian, 1998. "Okun's Law, Cointegration and Gap Variables," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 625-637, July. [Downloadable!] (restricted)
  15. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Mark S Astley & Tony Yates, . "Inflation and real disequilibria," Bank of England working papers 103, Bank of England. [Downloadable!]
  17. Steven Braun, 1984. "Productivity and the NIIRU (and other Phillips curve issues)," Working Paper Series / Economic Activity Section 34, Board of Governors of the Federal Reserve System (U.S.).
  18. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2006. "The (Ir)relevance of the NRU for Policy Making: The Case of Denmark," IZA Discussion Papers 2397, Institute for the Study of Labor (IZA). [Downloadable!]
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