NAIRU Uncertainty and Nonlinear Policy Rules

15 Pages Posted: 17 Jan 2001

See all articles by Laurence H. Meyer

Laurence H. Meyer

Government of the United States of America - Division of Research and Statistics

Eric T. Swanson

University of California, Irvine - Department of Economics

Volker Wieland

University of Frankfurt

Date Written: January 2, 2001

Abstract

The Federal Reserve allowed unemployment to fall substantially in the late 1990s, to a level well below earlier estimates of the NAIRU, without a corresponding tightening of monetary policy. In addition, Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. This paper attempts to offer an explanation for the Fed's behavior and a theoretical justification for such a nonlinear policy rule, and provides some empirical evidence on the relative performance of linear and nonlinear rules when there is heightened uncertainty about the NAIRU.

Keywords: Simple nonlinear policy rule, signal extraction with non-normal prior, nonlinear updating

JEL Classification: E52, E24

Suggested Citation

Meyer, Laurence H. and Swanson, Eric T. and Wieland, Volker, NAIRU Uncertainty and Nonlinear Policy Rules (January 2, 2001). Available at SSRN: https://ssrn.com/abstract=256714 or http://dx.doi.org/10.2139/ssrn.256714

Laurence H. Meyer

Government of the United States of America - Division of Research and Statistics

20th and C Streets, NW
Washington, DC 20551
United States

Eric T. Swanson (Contact Author)

University of California, Irvine - Department of Economics ( email )

University of California, Irvine
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
(949) 824-8305 (Phone)

HOME PAGE: http://www.ericswanson.org

Volker Wieland

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

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