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How Uncertain are NAIRU Estimates in Colombia

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  • Juan Manuel Julio

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Abstract

Most of the proposed macro models and Phillips curves for policy design and analysis in Colombia depend on estimates of the potential output. However, it is widely known that this estimates are highly unreliable because of its level of estimation uncertainty. Following Staiger et al.(1996), we explore some common and not very common "fully structural" estimates of the NAIRU, the Non Accelerating Rate of Unemployment, provide confidence bands, and formally test the constancy hypothesis on the NAIRU. We also study the robustness of this results to the specification of the Phillips Curve. We find more reliable estimates of the NAIRU than previous estimates of the output gap, and find evidence in favor of a non constant NAIRU. Our results indicate that it has increased about 4 percentage points along the sample span. However uncertainty results are not robust to specification. There a single policy implication: An increasing NAIRU along wiith a policy of reduction and stabilization of inflation may imply increasing unemployment levels. Since the NAIRU is the component of unemployment that do not respond to monetary policy, it is up to the goverment to design policies for its reduction.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 184.

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Handle: RePEc:bdr:borrec:184

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Keywords: NAIRU; Phillips Curve; Estimation Uncertainty; Fieller's Method Classification- JEL:;

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References

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  1. Robert G. King & Mark W. Watson, 1994. "The post-war U.S. Phillips curve: a revisionist econometric history," Working Paper Series, Macroeconomic Issues 94-14, Federal Reserve Bank of Chicago.
  2. Javier Gómez & Juan Manuel Julio, . "An Estimation of the Nonlinear Philips Curve in Colombia," Borradores de Economia 160, Banco de la Republica de Colombia.
  3. 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.
  4. Jairo Núnez & Raquel Bernal, 1997. "El Desempleo En Colombia: Tasa Natural, Desempleo Cíclico Y Estructural Y La Duración Del Desempleo, (1976-1998)," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  5. Juan Manuel Julio & Javier Gómez, 1998. "Output Gap Estimation, Estimation Uncertainty And Its Effect On Policy Rules," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  6. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
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Cited by:
  1. Luis Eduardo Arango & Carlos Esteban Posada, . "El Desempleo en Colombia," Borradores de Economia 176, Banco de la Republica de Colombia.
  2. Luis Eduardo Arango & Carlos Esteban Posada, . "The Time-Varying Long-Run Unemployment Rate: The Colombian Case," Borradores de Economia 389, Banco de la Republica de Colombia.
  3. Adolfo Cobo, 2005. "Output Gap In Colombia: An Eclectic Approach," BORRADORES DE ECONOMIA 003310, BANCO DE LA REPÚBLICA.
  4. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "The Time-Varying Long-Run Unemployment Rate: The Case Colombian," BORRADORES DE ECONOMIA 003629, BANCO DE LA REPÚBLICA.
  5. Adolfo L.Cobo, . "Output Gap in Colombia: An Eclectic Approach," Borradores de Economia 327, Banco de la Republica de Colombia.
  6. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "La Tasa De Desempleo De Largo Plazo En Colombia," BORRADORES DE ECONOMIA 003085, BANCO DE LA REPÚBLICA.
  7. Jorge Andrés Tamayo, . "La tasa natural de desempleo en Colombia y sus determinantes," Borradores de Economia 491, Banco de la Republica de Colombia.
  8. Rodrigo Taborda & Juan Carlos Guataqui, 2003. "Firm level evidence of efficiency wages and labor turnover in Colombia's manufacturing industry," BORRADORES DE INVESTIGACIÓN 002729, UNIVERSIDAD DEL ROSARIO.

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