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In search of the natural rate of unemployment

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  • Thomas B. King
  • James Morley

Abstract

The natural rate of unemployment can be measured as the time-varying steady state of a structural vector autoregression. For post-War U.S. data, the natural rate implied by this approach is more volatile than most previous estimates, with its movements accounting for the bulk of the variation in the unemployment rate, as well as substantial portions of the variation in aggregate output and inflation. These movements, in turn, can be related to variables associated with labor-market search theory, including unemployment benefits, labor productivity, real wages, and sectoral shifts in the labor market. There is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment, supporting the existence of a short-run Phillips Curve.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Supervisory Policy Analysis Working Papers with number 2005-05.

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Date of creation: 2005
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Handle: RePEc:fip:fedlsp:2005-05

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Keywords: Unemployment;

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References

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
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  3. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  4. Robert J. Gordon, 1997. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  5. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
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Citations

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Cited by:
  1. Richard A. Ashley & Randall J. Verbrugge., 2006. "Mis-Specification in Phillips Curve Regressions: Quantifying Frequency Dependence in This Relationship While Allowing for Feedback," Working Papers e06-11, Virginia Polytechnic Institute and State University, Department of Economics.
  2. Jorge E. Restrepo, 2008. "Estimaciones de NAIRU para Chile," Investigación Conjunta - español, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 1-16 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA), July.
  3. Valcarcel, Victor J. & Wohar, Mark E., 2013. "Changes in the oil price-inflation pass-through," Journal of Economics and Business, Elsevier, vol. 68(C), pages 24-42.
  4. Miyamoto, Hiroaki & Takahashi, Yuya, 2011. "Productivity growth, on-the-job search, and unemployment," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 666-680.
  5. Valcarcel, Victor J., 2012. "The dynamic adjustments of stock prices to inflation disturbances," Journal of Economics and Business, Elsevier, vol. 64(2), pages 117-144.
  6. Richard A. Ashley. & Randall J. Verbrugge., 2006. "Mis-Specification and Frequency Dependence in a New Keynesian Phillips Curve," Working Papers e06-12, Virginia Polytechnic Institute and State University, Department of Economics.
  7. Yuelin Liu & James Morley, 2013. "Structural Evolution of the Postwar U.S. Economy," Discussion Papers 2013-15, School of Economics, The University of New South Wales.
  8. Klinger, Sabine & Weber, Enzo, 2014. "Decomposing Beveridge curve dynamics by correlated unobserved components," University of Regensburg Working Papers in Business, Economics and Management Information Systems 480, University of Regensburg, Department of Economics.
  9. 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, vol. 44(2), pages 673-694, May.
  10. Hian Teck Hoon & Kong Weng Ho, 2007. "Distance to Frontier and the Big Swings of the Unemployment Rate: What Room is Left for Monetary Policy?," Kiel Working Papers 1347, Kiel Institute for the World Economy.
  11. Juan José Echavarría & Enrique López & Sergio Ocampo & Norberto Rodríguez, 2011. "Choques, instituciones laborales y desempleo en Colombia," BORRADORES DE ECONOMIA 009154, BANCO DE LA REPÚBLICA.
  12. Sergio Ocampo & Norberto Rodríguez, 2011. "An Introductory Review of a Structural VAR-X Estimation and Applications," BORRADORES DE ECONOMIA 009200, BANCO DE LA REPÚBLICA.
  13. Jorge E. Restrepo L., 2008. "Estimating the NAIRU for Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(2), pages 31-46, August.
  14. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.

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