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Measuring the NAIRU – a structural VAR approach

By Hongmei Zhao and Vincent (Vincent Peter) Hogan


We calculate the NAIRU for the U.S. in a framework where inflation and the unemployment rate can respond to each other. The NAIRU is defined as the component of the actual unemployment rate that is uncorrelated with inflation in the long run. Using a structural VAR approach, the NAIRU and core inflation can be estimated simultaneously. Our estimation results show that the NAIRU falls dramatically at the end of 1990s and the long run vertical Phillips Curve shifts back from 6.8 per cent before 1997 to 4 per cent afterwards

Topics: Natural rate of unemployment--United States, Inflation (Finance)--Mathematical models
Publisher: University College Dublin, School of Economics
Year: 2006
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