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A Kalman filter approach to estimating the UK NAIRU

  • Jennifer V Greenslade
  • Richard G Pierse
  • Jumana Saleheen

In this paper, the Kalman filter method is applied to UK Phillips-curve models and estimates are derived for the NAIRU from 1973 to 2000. The resulting profiles suggest that the NAIRU peaked around the mid-1980s and fell back thereafter. Structural changes in the labour market have reduced inflationary pressure from that source, and we suggest that temporary effects from real import prices and real oil prices were an important additional downward influence on inflation in the latter half of the 1990s. Some of the uncertainties around our NAIRU estimates are shown. But, even though there may be uncertainty about exactly where the NAIRU is, a variety of models suggest that unemployment was below the NAIRU for much of the second half of the 1990s.

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Paper provided by Bank of England in its series Bank of England working papers with number 179.

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Date of creation: Mar 2003
Date of revision:
Handle: RePEc:boe:boeewp:179
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  1. Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999. "The Phillips curve in Australia," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 223-258, October.
  2. Rasi, Chris-Marie & Viikari, Jan-Markus, 1998. "The Time-Varying NAIRU and Potential Output in Finland," Research Discussion Papers 6/1998, Bank of Finland.
  3. Adams, Charles & Coe, David T., 1989. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," MPRA Paper 8622, University Library of Munich, Germany.
  4. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  5. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  6. Laurence Boone, 2000. "Comparing Semi-Structural Methods to Estimate Unobserved Variables: The HPMV and Kalman Filters Approaches," OECD Economics Department Working Papers 240, OECD Publishing.
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  8. Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
  9. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
  10. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
  11. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  12. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  13. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
  14. Rod Cross & Julia Darby & Jonathan Ireland, 1997. "Uncertainties Surrounding Natural Rate Estimates in the G7," Working Papers 9712, Business School - Economics, University of Glasgow.
  15. Roy Cromb, 1993. "A Survey of Recent Econometric Work on the NAIRU," Journal of Economic Studies, Emerald Group Publishing, vol. 20(1/2), pages 27-51, January.
  16. Guy Debelle & Douglas Laxton, 1997. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 249-282, June.
  17. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  18. Rebecca L Driver & Jennifer V Greenslade & Richard G Pierse, 2003. "The role of expectations in estimates of the NAIRU in the United States and the United Kingdom," Bank of England working papers 180, Bank of England.
  19. Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
  20. Sweta Chaman Saxena & Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden," IMF Working Papers 00/59, International Monetary Fund.
  21. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
  22. Laurence Boone & Claude Giorno & Mara Meacci & Dave Rae & Pete Richardson & Dave Turner, 2001. "Estimating the structural rate of unemployment for the OECD countries," OECD Economic Studies, OECD Publishing, vol. 2001(2), pages 171-216.
  23. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
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