A System Approach for Measuring the Euro Area NAIRU

38 Pages Posted: 23 Feb 2003

See all articles by Silvia Fabiani

Silvia Fabiani

Bank of Italy

Ricardo Mestre

European Central Bank (ECB)

Date Written: May 2001

Abstract

This paper addresses the issue of measuring the NAIRU for the euro area and assessing the robustness and precision of the obtained estimates. The empirical framework adopted is based on systems combining an Okun-type relationship between cyclical unemployment and the output gap with a Phillips curve and stochastic laws of motion for the NAIRU and potential output. Such systems have been estimated using Kalman-filter techniques.

The results obtained point to an estimate of the area-wide NAIRU that is robust to changes in the underlying models. This robustness is shown to hold both in terms of the mean - i.e., the shape of the resulting NAIRU - and the variance of the process. The latter is derived through bootstrap exercises using the models alone or pooled together. The evidence found suggests that the increase in the aggregate NAIRU that took place in the early part of the sample period has come to a halt and may be about to be reversed.

Keywords: Bootstrap; Kalman Filter; NAIRU; Unobserved Components

JEL Classification: C11, C15, E31, E32

Suggested Citation

Fabiani, Silvia and Mestre, Ricardo, A System Approach for Measuring the Euro Area NAIRU (May 2001). ECB Working Paper No. 65. Available at SSRN: https://ssrn.com/abstract=356140

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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