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Estimating the time-varying NAIRU for Germany and policy implications

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  • Yu Hsing

Abstract

This article extends Ball and Mankiw (2002) and applies the Hodrick-Prescott filter (1997) to estimate the time-varying NAIRU for Germany. The slope estimate of the Phillips curve is insignificant when the widely used lagged inflation rate πt-1 is selected as a proxy for the expected inflation rate. The average inflation rate in past 4 years is a better proxy for the expected inflation rate. Estimated NAIRUs with λ = 1000 show a steady rising trend. The estimated NAIRU of 9.84% with λ = 1000 in 2005 is slightly higher than the actual unemployment rate of 9.70% in 2005, suggesting that monetary easing or large deficit spending may cause the inflation rate to accelerate.

Suggested Citation

  • Yu Hsing, 2009. "Estimating the time-varying NAIRU for Germany and policy implications," Applied Economics Letters, Taylor & Francis Journals, vol. 16(5), pages 469-473.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:5:p:469-473
    DOI: 10.1080/13504850601018742
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    References listed on IDEAS

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    1. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
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    6. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco.
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