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The non-accelerating inflation rate of unemployment (NAIRU) in a small open economy: The irish context

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  • Meyler, Aidan

Abstract

In Ireland the link between real disequilibrium (such as the unemployment gap) and inflation (either price or wage) is blurred by external factors, operating through traded goods price inflation. Attempts to extract information about the unobservable NAIRU from aggregate inflation measures, such as the HICP or wages inflation, are likely to be swamped by these external factors. This paper uses a measure of ‘domestically generated’ inflation (defined as the gap between the services inflation rate and the goods inflation rate), to capture domestic inflationary pressures arising from the labour market. A strong relationship is seen to exist between ‘domestically generated’ inflation and labour market tightness. The results also suggest that the NAIRU may not have varied significantly since 1979, despite the large movements in unemployment over the same period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11363.

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Date of creation: Dec 1999
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Publication status: Published in Central Bank and Financial Services Authority of Ireland Technical Paper Series 5/RT/99.1999(1999): pp. 1-67
Handle: RePEc:pra:mprapa:11363
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Keywords: Ireland; unemployment ; inflation ; traded goods ; NAIRU domestically generated inflation;

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Find related papers by JEL classification:
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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  1. Hamid Faruqee & Douglas Laxton & Bart Turtelboom & Peter Isard & Eswar Prasad, 1998. "Multimod Mark III; The Core Dynamic and Steady State Model," IMF Occasional Papers 164, International Monetary Fund.
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  3. Meyler, Aidan & Kenny, Geoff & Quinn, Terry, 1998. "Forecasting irish inflation using ARIMA models," MPRA Paper 11359, University Library of Munich, Germany.
  4. Thomas Laubach, 2001. "Measuring The NAIRU: Evidence From Seven Economies," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 218-231, May.
  5. Guy Debelle & James Vickery, 1997. "Is the Phillips Curve a Curve? Some Evidence and Implications for Australia," RBA Research Discussion Papers rdp9706, Reserve Bank of Australia.
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  8. Laxton, Douglas & Rose, David & Tambakis, Demosthenes, 1999. "The U.S. Phillips curve: The case for asymmetry," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1459-1485, September.
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  10. 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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  14. John FitzGerald & Ide Kearney, 1999. "Migration and the Irish Labour Market," Papers WP113, Economic and Social Research Institute (ESRI).
  15. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
  16. Kenny, Geoff & McGettigan, Donal, 1999. "Modelling Traded, Non-traded and Aggregate Inflation in a Small Open Economy: The Case of Ireland," Manchester School, University of Manchester, vol. 67(1), pages 60-88, January.
  17. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
  18. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
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Cited by:

  1. Slevin, Geraldine, 2001. "Potential Output and the Output Gap in Ireland," Research Technical Papers 5/RT/01, Central Bank of Ireland.
  2. O'Donnell, Nuala, 2005. "Overview of Recent Progress in Macroeconomic Modelling in the Central Bank," Quarterly Bulletin Articles, Central Bank of Ireland, pages 115-131, October.

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