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The Non-Accelerating Inflation Rate of Unemployment (NAIRU) in a Small Open Economy: The Irish Context

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  • Meyler, Aidan

    (Central Bank and Financial Services Authority of Ireland)

Abstract

In Ireland the link between real disequilibrium (such as the unemployment gap) and inflation (either price or wage) is blurred by external factors, operating through traded goods price inflation. Attempts to extract information about the unobservable NAIRU from aggregate inflation measures, such as the HICP or wages inflation, are likely to be swamped by these external factors. This paper uses a measure of ‘domestically generated’ inflation (defined as the gap between the services inflation rate and the goods inflation rate), to capture domestic inflationary pressures arising from the labour market. A strong relationship is seen to exist between ‘domestically generated’ inflation and labour market tightness. The results also suggest that the NAIRU may not have varied significantly since 1979, despite the large movements in unemployment over the same period.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 5/RT/99.

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Length: 28 pages
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:cbi:wpaper:5/rt/99

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Cited by:
  1. O'Donnell, Nuala, 2005. "Overview of Recent Progress in Macroeconomic Modelling in the Central Bank," Quarterly Bulletin Articles, Central Bank of Ireland, pages 115-131, October.
  2. Slevin, Geraldine, 2001. "Potential Output and the Output Gap in Ireland," Research Technical Papers 5/RT/01, Central Bank of Ireland.

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