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Measuring the UK short-run NAIRU

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  • Nicoletta Batini
  • Jennifer V. Greenslade

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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Bibliographic Info

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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  1. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1492, C.E.P.R. Discussion Papers.
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  4. Arturo Estrella & Frederic S. Mishkin, 1999. "Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy Rules, pages 405-436 National Bureau of Economic Research, Inc.
  5. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers, Centre for Economic Performance, LSE dp0407, Centre for Economic Performance, LSE.
  6. Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, 2003. "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers, Bank of England 179, Bank of England.
  7. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  8. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(1), pages 33-49, Winter.
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  15. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  16. Carlin, Wendy & Soskice, David, 1990. "Macroeconomics and the Wage Bargain: A Modern Approach to Employment, Inflation, and the Exchange Rate," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198772446, October.
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  18. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198284345, October.
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  22. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series, European Central Bank 0017, European Central Bank.
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Cited by:
  1. Wolfgang Pollan, . "Incomes Policies, Expectations and the NAIRU," WIFO Working Papers, WIFO 433, WIFO.
  2. Karanassou, Marika & Sala, Hector & Salvador, Pablo F., 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).
  3. Wolfgang Pollan, 2013. "Inflation Persistence or the Protracted Effects of Commodity Price Changes?," WIFO Working Papers, WIFO 451, WIFO.
  4. Eva M. Köberl & Sarah M. Lein, 2011. "The NIRCU and the Phillips curve: an approach based on micro data," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 44(2), pages 673-694, May.
  5. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute for the Study of Labor (IZA).
  6. Oreste Napolitano & Alberto Montagnoli, 2010. "The European Unemployment Gap and the Role of Monetary Policy," Economics Bulletin, AccessEcon, vol. 30(2), pages 1346-1358.
  7. Valerija Botric, 2012. "NAIRU estimates for Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 163-180.
  8. Huh, Hyeon-seung & Jang, Inwon, 2007. "Nonlinear Phillips curve, sacrifice ratio, and the natural rate of unemployment," Economic Modelling, Elsevier, Elsevier, vol. 24(5), pages 797-813, September.
  9. Hjelm, Göran & Jönsson, Kristian, 2010. "In Search of a Method for Measuring the Output Gap of the Swedish Economy," Working Paper, National Institute of Economic Research 115, National Institute of Economic Research.

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