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Time-Varying Nairu and Real Interest Rates in the Euro Area

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Abstract

This paper analyses the Nairu in the euro area and the influence that monetary policy had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early 1970s. The Kalman-filter technique is applied here for the first time using explicit exogenous variables. In particular, real interest rates were found to explain a quarter of the increase in the Nairu between 1980 and 1995. This indicates the possibility of a long-run nonsuperne utrality of monetary policy.

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Bibliographic Info

Paper provided by European Network of Economic Policy Research Institutes in its series Economics Working Papers with number 024.

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Length: 32 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:epr:enepwp:024

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Keywords: Nairu; Monetary Policy; Kalman Filter; Phillips curve; Superneutrality.;

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