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Estimating a New Zealand NAIRU

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  • Kam Leong Szeto
  • Melody Guy

    ()
    (New Zealand Treasury)

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    Abstract

    This paper estimates the non-increasing inflation rate of unemployment or NAIRU for New Zealand. A NAIRU that varies over time has important implications in considering inflationary pressures. This paper estimates the time-varying NAIRU using a Kalman filter on a reduced form approach and extends previous studies in several ways. Using different model specifications and dependent variables suggests a band of NAIRU estimates of between four and five percent (with further error bands around that). The results of this paper indicate that the NAIRU is a relevant concept and the unemployment gap should be one of the factors considered when assessing inflationary pressure.

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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2004/04-10/twp04-10.pdf
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    Bibliographic Info

    Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 04/10.

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    Length: 23 pages
    Date of creation: Sep 2004
    Date of revision:
    Handle: RePEc:nzt:nztwps:04/10

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    Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
    Phone: +64-4-472 2733
    Fax: +64-4-473 0982
    Web page: http://www.treasury.govt.nz
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    Related research

    Keywords: NAIRU; Kalman filter; Unemployment; Phillips Curve; New Zealand;

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    References

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    1. repec:cup:macdyn:v:6:y:2002:i:2:p:202-41 is not listed on IDEAS
    2. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
    3. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
    4. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
    5. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
    6. Skalin, Joakim & Ter svirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 202-241, April.
    7. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
    8. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
    9. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 0017, European Central Bank.
    10. 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.
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    Cited by:
    1. 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.

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