The NAIRU Concept - Measurement uncertainties, hysteresis and economic policy role
AbstractThe present paper looks at the notion of a NAIRU and asks whether it continues to stand up to rigorous analysis in terms of both its theoretical underpinnings or of its empirical applicability. The paper addresses the essential questions in relation to an examination of the NAIRU, namely: firstly can it be reliably calculated ? and secondly, does the concept continue to have any relevance in terms of the micro and macro policy debate ? In relation to the first question, it is stressed that precise measurements of the NAIRU are extremely difficult to produce because any measurement process is dogged by the existence of a number of fundamental sources of uncertainty. As regards the second question, the growing unease, openly articulated in the vast literature on this topic, concerning both the theoretical and empirical underpinnings of the NAIRU, suggests caution needs to be exercised in terms of any policy role being attributed to the concept. The paper tentatively concludes that while theoretically the NAIRU is still a useful concept, its extensive empirical inadequacies render it less than useful in the macro policy context, although a case can still be made for sustaining its use as a structural indicator for cross country, labour flexibility, comparisons.
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Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 136.
Length: 136 pages
Date of creation: Sep 1999
Date of revision:
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nairu; non-accelerating inflation rate of unemployment;
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- Emilie Jašová & Božena Kaderábková, 2012. "Comparing NAIRU and Economic Cycle from the Perspective of Labour Market in the Countries of the Visegrad Group," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 3-23.
- Camarero, Mariam & Carrion-i-Silvestre, Josep Lluis & Tamarit, Cecilio, 2005. "Unemployment dynamics and NAIRU estimates for accession countries: A univariate approach," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 584-603, September.
- Božena Kadeřábková & Emilie Jašová, 2011. "Analysis of the Indicator NAIRU on the Sector Level," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 508-525.
- Ángel Estrada & Ignacio Hernando & J. David López-Salido, 2000. "Measuring the NAIRU in the Spanish Economy," Banco de EspaÃÂ±a Working Papers 0009, Banco de EspaÃ±a.
- Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2005. "Unemployment dynamics and NAIRU estimates for CEECs : A univariate approach," Working Papers in Economics 131, Universitat de Barcelona. Espai de Recerca en Economia.
- Julian Reiss, 2001. "Natural economic quantities and their measurement," Journal of Economic Methodology, Taylor and Francis Journals, vol. 8(2), pages 287-311.
- Robert Anderton & Mario Izquierdo & Ted Aranki & Boele Bonthius & Katarzyna Budnik & Ramón Gómez-Salvador & Valerie Jarvis & Ana Lamo & Aidan Meyler & Daphne Momferatou & Roberta Serafini & Magdalen, 2012. "Euro area labour markets and the crisis," Occasional Paper Series 138, European Central Bank.
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