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Measuring macroeconomic performance through a non-parametric Taylor curve

Recently, frontier techniques have been utilised in the measurement of countries' macroeconomic performance by constructing a "production set" where the outputs are some macroeconomic indicators, while the inputs collapse to a unit scalar. In the present study, a different approach is proposed. The trade-off between the variability of inflation and of the level of activity (often defined as the Taylor Curve) is posited as the relevant policy frontier. This frontier is estimated through non-parametric techniques on a sample of 19 OECD countries during the 1960-99 period. There seems to be a definite role for cost-shocks, as well as for some supply-side characteristics, in shifting the variability trade-off. Also, the relative shadow price of the variability of inflation increases over time. Countries appear on the whole to have become slightly more efficient, but their performance has worsened, because the frontier has shifted upwards.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 95.

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Date of creation: 02 Apr 2003
Date of revision:
Handle: RePEc:sef:csefwp:95
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  1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
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  11. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  12. Stephen G. Cecchetti, 1998. "Policy rules and targets: framing the central banker's problem," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 1-14.
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  17. Knox Lovell, C. A., 1995. "Measuring the macroeconomic performance of the Taiwanese economy," International Journal of Production Economics, Elsevier, vol. 39(1-2), pages 165-178, April.
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