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Measuring the NAIRU – a structural VAR approach

  • Hongmei Zhao
  • Vincent (Vincent Peter) Hogan

We calculate the NAIRU for the U.S. in a framework where inflation and the unemployment rate can respond to each other. The NAIRU is defined as the component of the actual unemployment rate that is uncorrelated with inflation in the long run. Using a structural VAR approach, the NAIRU and core inflation can be estimated simultaneously. Our estimation results show that the NAIRU falls dramatically at the end of 1990s and the long run vertical Phillips Curve shifts back from 6.8 per cent before 1997 to 4 per cent afterwards.

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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200617.

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Date of creation: Nov 2006
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Handle: RePEc:ucn:wpaper:200617
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  1. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
  2. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
  3. Stuart E. Weiner, 1993. "New estimates of the natural rate of unemployment," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 53-69.
  4. Laurence Ball & N Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Economics Working Paper Archive 475, The Johns Hopkins University,Department of Economics.
  5. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
  6. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  7. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  8. Dipak Ghosh & Swarna (Bashu) Dutt, . "Nonstationarity and Nonlinearity in the US Unemployment Rate: A Re-examination," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center.
  9. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  10. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
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