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Minding the gap : central bank estimates of the unemployment natural rate

  • Sharon Kozicki
  • Peter Tinsley

A time-varying parameter framework is suggested for use with real-time multiperiod forecast data to estimate implied forecast equations. The framework is applied to historical briefing forecasts prepared for the Federal Open Market Committee to estimate the U.S. central bank’s ex ante perceptions of the natural rate of unemployment. Relative to retrospective estimates, empirical results do not indicate severe underestimation of the natural rate of unemployment in the 1970s.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 05-03.

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Date of creation: 2005
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Handle: RePEc:fip:fedkrw:rwp05-03
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