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Measuring the NAIRU: a complementary approach

  • De la Serve, M-E.
  • Lemoine, M.

Estimates of the Nairu generally suffer from a large uncertainty, which can be reduced by adopting a bivariate framework and assuming that shifts of the Phillips curve share a common trend with the unemployment rate. We consider in this paper if this common trend assumption is empirically relevant or not for seven economies over the sample 1973-2010. First, it appears that the Nairu can substantially differ from the unemployment trend. Second, relaxing the common trend assumption improves the fit of the inflation equation. Third, this assumption is necessary for getting an important reduction of uncertainty in a bivariate framework.

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Paper provided by Banque de France in its series Working papers with number 342.

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Length: 22 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:bfr:banfra:342
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
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  1. Pierre-Olivier Beffy & Patrice Ollivaud & Pete Richardson & Franck Sédillot, 2006. "New OECD Methods for Supply-side and Medium-term Assessments: A Capital Services Approach," OECD Economics Department Working Papers 482, OECD Publishing.
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  4. 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.
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  11. Arabinda Basistha & Richard Startz, 2008. "Measuring the NAIRU with Reduced Uncertainty: A Multiple-Indicator Common-Cycle Approach," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 805-811, November.
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  17. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  18. James H. Stock & Mark W. Watson, 2008. "Phillips Curve Inflation Forecasts," NBER Working Papers 14322, National Bureau of Economic Research, Inc.
  19. Rebecca L. Driver & Jennifer V. Greenslade & Richard G. Pierse, 2006. "Whatever Happened to Goldilocks? The Role of Expectations in Estimates of the NAIRU in the US and the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 45-79, 02.
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