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Will the (German) NAIRU Please Stand up?

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  • Franz, Wolfgang

Abstract

This paper deals with a critical assessment and a reestimation of the "non-accelerating in ation rate of unemployment" (NAIRU) for Germany. There are quite a few obstacles to perceiving the NAIRU as an understandable and easy-to-use analytical instrument, suitable for economic policy: the possibility of a non-vertical Phillips curve (e.g. in times of low in ation), the occurrence of shocks and hysteresis effects, the (mis-)measurement of important variables such as in ation expectations, cointegration issues, and a time variability of the NAIRU and its confidence intervals. Despite many serious caveats a new attempt is made to estimate a NAIRU for Germany based on conventional Phillips curves as well as on new approaches such as using direct measures of in ationary expectations, the Kalman filter method, and the residual-based bootstrap procedure (in order to estimate confidence intervals). However, by any method, simple or complex, the NAIRU is very hard to determine and subject to considerable arbitrariness.

Suggested Citation

  • Franz, Wolfgang, 2003. "Will the (German) NAIRU Please Stand up?," ZEW Discussion Papers 03-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:1345
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    Cited by:

    1. Christian Dreger & Hans-Eggert Reimers, 2006. "Hysteresis and Persistence in the Course of Unemployment: The EU and US Experience," Discussion Papers of DIW Berlin 572, DIW Berlin, German Institute for Economic Research.
    2. Jaromír Hurník & David Navrátil, 2005. "Potential Output in the Czech Republic: A Production Function Approach," Prague Economic Papers, University of Economics, Prague, vol. 2005(3), pages 253-266.
    3. Andreas Brenck & Arnold Berndt & Karl-Peter Naumann, 2003. "Neues Tarifsystem der Deutschen Bahn: Sinnvolle Preisgestaltung im öffentlichen Verkehr?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 56(16), pages 3-13, August.
    4. Jan Gottschalk & Ulrich Fritsche, 2005. "The New Keynesian Model and the Long-Run Vertical Phillips Curve: Does It Hold for Germany?," Discussion Papers of DIW Berlin 521, DIW Berlin, German Institute for Economic Research.
    5. repec:ris:badest:0548 is not listed on IDEAS
    6. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute for the Study of Labor (IZA).
    7. Fitzenberger Bernd & Franz Wolfgang & Bode Oliver, 2008. "The Phillips Curve and NAIRU Revisited: New Estimates for Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(5-6), pages 465-496, October.
    8. Florian Kajuth, 2016. "NAIRU Estimates for Germany: New Evidence on the Inflation–Unemployment Tradeoff," German Economic Review, Verein für Socialpolitik, vol. 17(1), pages 104-125, February.
    9. Klaus Abberger & Gebhard Flaig & Wolfgang Nierhaus, 2007. "ifo Konjunkturumfragen und Konjunkturanalyse : ausgewählte methodische Aufsätze aus dem ifo Schnelldienst," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 33.
    10. Wolfgang Franz, 2005. "Will the (German) NAIRU Please Stand Up?," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 131-153, May.
    11. Jaromír Hurník & David Navrátil, 2005. "Labor-Market Performance and Macroeconomic Policy: Time-Varying NAIRU in the Czech Republic (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(1-2), pages 25-40, January.
    12. José Francisco Bellod Redondo, 2013. "La NAIRU y la pseudociencia neoliberal," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 16, pages 18-43.
    13. Kromphardt, Jürgen & Logeay, Camille, 2007. "Changes in the Balance of Power Between the Wage and Price Setters and the Central Bank: Consequences for the Phillips Curve and the NAIRU," Kiel Working Papers 1354, Kiel Institute for the World Economy (IfW).
    14. Valerija Botric, 2012. "NAIRU estimates for Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 163-180.
    15. Smolny Werner, 2009. "Wage Adjustment, Competitiveness and Unemployment – East Germany after Unification," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(2-3), pages 130-145, April.
    16. Christian Dreger & Hans-Eggert Reimers, 2009. "Hysteresis in the development of unemployment: the EU and US experience," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(4), pages 267-276, December.
    17. repec:eee:jpolmo:v:39:y:2017:i:5:p:883-908 is not listed on IDEAS
    18. Antonella Palumbo, 2008. "I metodi di stima del PIL potenziale tra fondamenti di Teoria economica e Contenuto empirico," Departmental Working Papers of Economics - University 'Roma Tre' 0092, Department of Economics - University Roma Tre.
    19. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa : eine Bestandsaufnahme (Structural unemployment in Europe * an inventory)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 411-427.
    20. Warmedinger, Thomas & Vetlov, Igor, 2006. "The German block of the ESCB multi-country model," Working Paper Series 654, European Central Bank.
    21. Schreiber, Sven & Wolters, Jurgen, 2007. "The long-run Phillips curve revisited: Is the NAIRU framework data-consistent?," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 355-367, June.
    22. Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2005. "Unemployment dynamics and NAIRU estimates for CEECs : A univariate approach," Working Papers in Economics 131, Universitat de Barcelona. Espai de Recerca en Economia.
    23. Shahbaz, Muhammad & Islam , Faridul & Shabbir, Muhammad Shahbaz, 2012. "Phillips Curve in a Small Open Economy: A Time Series Exploration of North Cyprus," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 35(4), pages 113-130, December.

    More about this item

    Keywords

    NAIRU; unemployment; inflation; Phillips curve; natural rate; hysteresis; supply shocks; inflation expectations; Kalman filter; bootstrap;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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