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Measuring the NAIRU — A structural VAR approach

  • Hongmei Zhao

    ()

  • Vincent Hogan

    ()

We calculate the NAIRU for the U.S. in a framework where inflation and the unemployment rate can respond to each other. The NAIRU is defined as the component of the actual unemployment rate that is uncorrelated with inflation in the long run. Using a structural VAR approach, the NAIRU and core inflation can be estimated simultaneously. Our estimation results show that the NAIRU falls dramatically at the end of 1990s and the long run vertical Phillips Curve shifts back from 6.8 per cent before 1997 to 4 per cent afterwards.

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File URL: http://hdl.handle.net/10.1007/s11459-011-0123-7
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Article provided by Springer in its journal Frontiers of Economics in China.

Volume (Year): 6 (2011)
Issue (Month): 1 (March)
Pages: 76-91

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Handle: RePEc:spr:frecch:v:6:y:2011:i:1:p:76-91
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  1. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
  2. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  3. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  4. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," NBER Working Papers 8940, National Bureau of Economic Research, Inc.
  5. Stuart E. Weiner, 1993. "New estimates of the natural rate of unemployment," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 53-69.
  6. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  7. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  8. Dipak Ghosh & Swarna (Bashu) Dutt, . "Nonstationarity and Nonlinearity in the US Unemployment Rate: A Re-examination," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center.
  9. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
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