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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. 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.
  2. 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.
  3. 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.
  4. 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).
  5. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  6. 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.
  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. Schlicht, Ekkehart, 2003. "Estimating Time-Varying Coefficients With the VC Program," Discussion Papers in Economics 34, University of Munich, Department of Economics.
  9. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
  10. 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.
  11. 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.
  12. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
  13. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers 1905, Harvard - Institute of Economic Research.
  14. 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.
  15. Fabiani, Silvia & Morgan, Julian, 2003. "Aggregation and euro area Phillips curves," Working Paper Series 0213, European Central Bank.
  16. Thomas Laubach, 2001. "Measuring The NAIRU: Evidence From Seven Economies," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 218-231, May.
  17. Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999. "The Phillips curve in Australia," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 223-258, October.
  18. 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.
  19. Fabiani, Silvia & Mestre, Ricardo, 2001. "A system approach for measuring the euro area NAIRU," Working Paper Series 0065, European Central Bank.
  20. 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.
  21. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
  22. Marika Karanassou & Dennis J. Snower, 2002. "An Anatomy of the Phillips Curve," Working Papers 478, Queen Mary University of London, School of Economics and Finance.
  23. Wolfgang Franz, 2001. "Neues von der NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(3), pages 256-284.
  24. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  25. 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.
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