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Will the (German) NAIRU Please Stand up?

  • Franz, Wolfgang

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.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-35.

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Date of creation: 2003
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Handle: RePEc:zbw:zewdip:1345
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  1. Solow, Robert M, 1986. "Unemployment: Getting the Questions Right," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S23-34, Supplemen.
  2. Fabiani, Silvia & Morgan, Julian, 2003. "Aggregation and euro area Phillips curves," Working Paper Series 0213, European Central Bank.
  3. David Gruen & Adrian Pagan & Christopher Thompson, 1999. "The Phillips Curve in Australia," RBA Research Discussion Papers rdp1999-01, Reserve Bank of Australia.
  4. Fabiani, Silvia & Mestre, Ricardo, 2001. "A system approach for measuring the euro area NAIRU," Working Paper Series 0065, European Central Bank.
  5. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages C45-61, May.
  6. Franz, Wolfgang, 2000. "Neues von der NAIRU?," ZEW Discussion Papers 00-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Graham, Liam & Snower, Dennis J., 2002. "The Return of the Long-Run Phillips Curve," IZA Discussion Papers 646, Institute for the Study of Labor (IZA).
  8. 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.
  9. Snower, Dennis J. & Karanassou, Marika, 2002. "An Anatomy of the Phillips Curve," IZA Discussion Papers 635, Institute for the Study of Labor (IZA).
  10. Thomas Laubach, 1997. "Measuring the NAIRU : evidence from seven economies," Research Working Paper 97-13, Federal Reserve Bank of Kansas City.
  11. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
  12. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
  13. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
  14. Batchelor, Roy A & Orr, Adrian B, 1988. "Inflation Expectations Revisited," Economica, London School of Economics and Political Science, vol. 55(219), pages 317-31, August.
  15. Schlicht, Ekkehart, 2003. "Estimating Time-Varying Coefficients With the VC Program," Discussion Papers in Economics 34, University of Munich, Department of Economics.
  16. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  17. Wolfgang Franz, 2005. "Will the (German) NAIRU Please Stand Up?," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 131-153, 05.
  18. Forsells, Magnus & Kenny, Geoff, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the euro area," Working Paper Series 0163, European Central Bank.
  19. Pfeiffer, Friedhelm & Franz, Wolfgang, 2002. "The Rationale for Wage Rigidity: Survey Evidence from German and US Firms," ZEW Discussion Papers 02-60, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  20. Franz, Wolfgang & Gordon, Robert J, 1993. "German and American Wage and Price Dynamics: Differences and Common Themes," CEPR Discussion Papers 777, C.E.P.R. Discussion Papers.
  21. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
  22. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics: Differences and common themes," Discussion Papers 2, University of Konstanz, Center for International Labor Economics (CILE).
  23. Rebecca L Driver & Jennifer V Greenslade & Richard G Pierse, 2003. "The role of expectations in estimates of the NAIRU in the United States and the United Kingdom," Bank of England working papers 180, Bank of England.
  24. Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, 2003. "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers 179, Bank of England.
  25. Reckwerth, Jürgen, 1997. "Der Zusammenhang zwischen Inflation und Output in Deutschland unter besonderer Berücksichtigung der Inflationserwartungen," Discussion Paper Series 1: Economic Studies 1997,05, Deutsche Bundesbank, Research Centre.
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