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How Uncertain are NAIRU Estimates in Colombia?

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  • Juan Manuel Julio

Abstract

Most of the proposed macro models and Phillips curves for policy design and analysis in Colombia depend on estimates of the potential output. However, it is widely known that this estimates are highly unreliable because of its level of estimation uncertainty. Following Staiger et al.(1996), we explore some common and not very common “fully structural” estimates of the NAIRU, the Non Accelerating Rate of Unemployment, provide confidence bands, and formally test the constancy hypothesis on the NAIRU. We also study the robustness of this results to the specification of the Phillips Curve. We find more reliable estimates of the NAIRU than previous estimates of the output gap, and find evidence in favor of a non constant NAIRU. Our results indicate that it has increased about 4 percentage points along the sample span. However uncertainty results are not robust to specification. There a single policy implication: An increasing NAIRU along with a policy of reduction and stabilization of inflation may imply increasing unemployment levels. Since the NAIRU is the component of unemployment that do not respond to monetary policy, it is up to the goverment to design policies for its reduction.

Suggested Citation

  • Juan Manuel Julio, 2001. "How Uncertain are NAIRU Estimates in Colombia?," Borradores de Economia 2798, Banco de la Republica.
    • Handle: RePEc:col:000094:002798
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    References listed on IDEAS

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    1. Jairo Núnez M. & Raquel Bernal S., 1997. "El desempleo en Colombia: tasa natural, desempleo cíclico y estructural y la duración del desempleo, (1976-1998)," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 16(32), pages 7-74, December.
    2. Javier Gómez & Juan Manuel Julio, 2000. "An Estimation of the Nonlinear Philips Curve in Colombia," Borradores de Economia 1975, Banco de la Republica.
    3. Juan Manuel Julio R. & Javier Gómez P., 1998. "Output Gap Estimation, Estimation Uncertainty and its Effect on Policy Rules," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 17(34), pages 89-117, December.
    4. 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.
    5. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(3), pages 315-352, June.
    6. King, Robert G. & Watson, Mark W., 1994. "The post-war U.S. phillips curve: a revisionist econometric history," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 157-219, December.
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    Cited by:

    1. Adolfo Cobo, 2005. "Output Gap In Colombia: An Eclectic Approach," Borradores de Economia 3310, Banco de la Republica.
    2. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "La Tasa de Desempleo de Largo Plazo en Colombia," Borradores de Economia 388, Banco de la Republica de Colombia.
    3. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "The Time-Varying Long-Run Unemployment Rate: The Colombian Case," Borradores de Economia 389, Banco de la Republica de Colombia.
    4. Rodrigo Taborda & Juan Carlos Guataqui, 2003. "Firm level evidence of efficiency wages and labor turnover in Colombia's manufacturing industry," Borradores de Investigación 2729, Universidad del Rosario.
    5. Luis Eduardo Arango & Carlos Esteban Posada, 2001. "El Desempleo en Colombia," Borradores de Economia 176, Banco de la Republica de Colombia.
    6. Deicy J. Cristiano-Botia & Manuel Dario Hernandez-Bejarano & Mario A. Ramos-Veloza, 2021. "Labor Market Indicator for Colombia (LMI)," Borradores de Economia 1152, Banco de la Republica de Colombia.
    7. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "The Time-Varying Long-Run Unemployment Rate: The Case Colombian," Borradores de Economia 3629, Banco de la Republica.
    8. Luis E. Arango & Luz A. Flórez, 2020. "Determinants of structural unemployment in Colombia: a search approach," Empirical Economics, Springer, vol. 58(5), pages 2431-2464, May.
    9. Jorge Anfdrés Tamayo, 2008. "La tasa natural de desempleo en Colombia y sus determinantes," Borradores de Economia 4545, Banco de la Republica.
    10. Letty Margarita BOHÓRQUEZ & César Augusto MERCHAN, 2005. "Una propuesta de subsidio al salario para Colombia (versión preliminar)," Archivos de Economía 1901, Departamento Nacional de Planeación.
    11. Adolfo L.Cobo, 2005. "Output Gap in Colombia: An Eclectic Approach," Borradores de Economia 327, Banco de la Republica de Colombia.

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    Nairu;

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