Measuring the Nairu: A Complementary Approach

22 Pages Posted: 9 Sep 2011

Date Written: September 2011

Abstract

Estimates of the Nairu generally suffer from a large uncertainty, which can be reduced by adopting a bivariate framework and assuming that shifts of the Phillips curve share a common trend with the unemployment rate. We consider in this paper if this common trend assumption is empirically relevant or not for seven economies over the sample 1973-2010. First, it appears that the Nairu can substantially differ from the unemployment trend. Second, relaxing the common trend assumption improves the fit of the inflation equation. Third, this assumption is necessary for getting an important reduction of uncertainty in a bivariate framework.

Keywords: Nairu, inflation, uncertainty

JEL Classification: C32, E31, E24

Suggested Citation

de la Serve, Marie-Elisabeth and Lemoine, Matthieu, Measuring the Nairu: A Complementary Approach (September 2011). Available at SSRN: https://ssrn.com/abstract=1924678 or http://dx.doi.org/10.2139/ssrn.1924678

Marie-Elisabeth De la Serve (Contact Author)

Banque de France ( email )

Paris
France

Matthieu Lemoine

Banque de France ( email )

Paris
France

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