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Time-Varying Nairu and Real Interest Rates in the Euro Area

This paper analyses the Nairu in the euro area and the influence that monetary policy had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early 1970s. The Kalman-filter technique is applied here for the first time using explicit exogenous variables. In particular, real interest rates were found to explain a quarter of the increase in the Nairu between 1980 and 1995. This indicates the possibility of a long-run nonsuperne utrality of monetary policy.

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Paper provided by European Network of Economic Policy Research Institutes in its series Economics Working Papers with number 024.

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Length: 32 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:epr:enepwp:024
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  27. James B. Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77.
  28. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
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  30. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(3), pages 721-25, August.
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