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A Univariate based NAIRU Estimation in the Context of Data Constrained Developing Countries

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  • Tauheed, Tahira
  • Tauseef, Tahira

Abstract

This study addresses the challenge of estimating the NAIRU in developing countries, focusing on Pakistan from 1972 to 2022. Due to data constraints in such contexts, it introduces robust methodologies, including Hodrick-Prescott and Kalman filters within a univariate framework, to derive NAIRU estimates and their precision. The NAIRU estimates average around five percent, fluctuating over time, indicating a time-varying NAIRU in Pakistan. An analysis of unemployment decomposition reveals that cyclical and non-structural factors are more influential than structural ones in the labor market, emphasizing the need for counter-cyclical policies alongside necessary structural reforms. The unemployment gap and inflation analysis provide mixed evidence on NAIRU's theoretical foundation, recommending simultaneous supply shocks' control and demand management in inflation-targeting. The study indicates Kalman filter estimates the NAIRU more effectively than the HP filter, though both lack precision. Therefore, future research in developing countries with limited data should focus on developing structural approaches suitable for lower degrees of freedom alongside univariate methods.

Suggested Citation

  • Tauheed, Tahira & Tauseef, Tahira, 2025. "A Univariate based NAIRU Estimation in the Context of Data Constrained Developing Countries," EconStor Preprints 323970, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:323970
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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