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In search of the natural rate of unemployment

  • King, Thomas B.
  • Morley, James

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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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 54 (2007)
Issue (Month): 2 (March)
Pages: 550-564

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Handle: RePEc:eee:moneco:v:54:y:2007:i:2:p:550-564
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