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Coping With Uncertainty: Historical and Real-Time Estimates Of The Natural Unemployment Rate and The Uk Monetary Policy

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  • George Chouliarakis

Abstract

The paper derives and compares historical and real-time estimates of the UK natural unemployment rate and shows that real-time estimates are fraught with noise and should be treated with scepticism. A counterfactual exercise shows that, for most of the 1990s, the Bank of England tracked changes in the natural rate relatively successfully, albeit with some recognition lag which, at times, might have led to excessively cautious policy. A careful scrutiny of the minutes of the monetary policy committee meetings reveals that such ‘cautiousness’ should be taken as evidence of awareness of the real-time informational limitations that monetary policy is facing.

Suggested Citation

  • George Chouliarakis, 2009. "Coping With Uncertainty: Historical and Real-Time Estimates Of The Natural Unemployment Rate and The Uk Monetary Policy," Centre for Growth and Business Cycle Research Discussion Paper Series 129, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:129
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr129.pdf
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    1. Nelson, Edward & Nikolov, Kalin, 2003. "UK inflation in the 1970s and 1980s: the role of output gap mismeasurement," Journal of Economics and Business, Elsevier, vol. 55(4), pages 353-370.
    2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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