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The Phillips Curve and NAIRU Revisited: New Estimates for Germany

  • Fitzenberger Bernd

    ()

    (Ph. D., Abt. für Empirische Wirtschaftsforschung und Ökonometrie, Albert-Ludwigs-Universität, 79085 Freiburg, Germany)

  • Franz Wolfgang

    ()

    (Zentrum für Europäische Wirtschaftsforschung GmbH, L 7, 1, 68161 Mannheim, Germany)

  • Bode Oliver

    ()

    (Statistisches Bundesamt, 65180 Wiesbaden, Germany. Phone: +49 (0)611 75 4212)

This paper provides new estimates of a time-varying NAIRU for Germany taking account of the structural break caused by German unification using two alternative estimators, the Kalman- Filter and the partially linear model. Estimating a standard Phillips curve, the sum of coefficients associated with expected inflation is far below unity, whatever measure of expected inflation rates is employed. Therefore, either the NAIRU concept is not applicable to Germany or, as it is our suggestion, one estimates the unemployment rate that is compatible with a tolerable inflation rate of say 2 percent following roughly the inflation target put forward by the European Central Bank. The estimates presented in this paper suggest that the NAIRU compatible with 2 percent inflation in Germany is currently around 7 percent if the definition of unemployment follows the concept of the ILO. In contrast to the consensus in the literature, our estimates suggest furthermore that the NAIRU in Germany has not increased since the early 1990's.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 228 (2008)
Issue (Month): 5-6 (October)
Pages: 465-496

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Handle: RePEc:jns:jbstat:v:228:y:2008:i:5-6:p:465-496
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