Alternative Measures of the NAIRU in the Euro Area: Estimates and Assessment

49 Pages Posted: 10 Dec 2002

See all articles by Silvia Fabiani

Silvia Fabiani

Bank of Italy

Ricardo Mestre

European Central Bank (ECB)

Date Written: March 2000

Abstract

The paper focuses on the measurement of the NAIRU (Non-Accelerating-Inflation-Rate-of-Unemployment) for the euro area and assesses the usefulness of different methodologies developed in the literature to estimate this unobservable variable at the aggregate level. After reviewing the theoretical framework underlying the most common estimation approaches, it presents several estimates of the area-wide NAIRU based on a number of direct (or statistical) techniques. The latter range from simple univariate filtering approaches to more complex multivariate methods based on Phillips curve relationships. The different estimates of the aggregate NAIRU appear to be consistent and robust with respect to alternative specifications, methodologies and choice of the inflation indicator. They also show significant inflation forecasting ability and are able to produce sensible measures of the output gap, therefore providing some ground to argue that unemployment and the unemployment gap may be a useful variable to analyse short-term economic developments at the euro area level.

Keywords: NAIRU, Phillips Curve, Kalman Filter

JEL Classification: E24, E31, C14, C22

Suggested Citation

Fabiani, Silvia and Mestre, Ricardo, Alternative Measures of the NAIRU in the Euro Area: Estimates and Assessment (March 2000). ECB Working Paper No. 17. Available at SSRN: https://ssrn.com/abstract=355541

Silvia Fabiani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Ricardo Mestre (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

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