Time-Varying Nairu and Real Interest Rates in the Euro Area. ENEPRI Working Paper No. 24, October 2003

This paper analyses the Nairu in the euro area and the influence that monetary policy had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early 1970s. The Kalman-filter technique is applied here for the first time using explicit exogenous variables. In particular, real interest rates were found to explain a quarter of the increase in the Nairu between 1980 and 1995. This indicates the possibility of a long-run nonsuperneutrality of monetary policy

Forecasting Employment for Germany

This paper deals with the estimation of employment equations for Germany, which are to be used for forecasting and simulation purposes. The authors estimate both single and system error correction equations for German working hours using quarterly raw data covering the period 1980:1-2004:2. Since the focus is on the question whether German reunification has affected or even modified the underlying economic relationships, the authors compare the results to those reported in previous studies for West Germany and Germany, respectively. The authors find that the elasticity of employment with respect to output is robustly estimated and can therefore be restricted to one. The elasticity of employment with respect to the real wage, however, is affected by German reunification and relative factor prices no longer play a significant role. The forecasting quality of the employment equation is satisfactory.employment, forecasting, cointegration, Germany

Hysteresis and Nairu in the Euro Area

This paper analyses the Nairu in the Euro Area and the influence that hysteresis had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early seventies. The Kalman-filter technique is applied here using explicit exogenous variables. In order to test for hysteresis, the dependence of the Nairu on actual unemployment and long-term unemployment is estimated and found to be significant for the Euro Area and Germany respectively. The existence of hysteresis effects implies the possibility of a long-run non-superneutrality of monetary policy.Nairu, hysteresis, Kalman Filter, Phillips curve, superneutrality

Time-varying Nairu and Real Interest Rates in the Euro Area

This paper analyses the Nairu in the Euro Area and the influence that monetary policy had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early seventies. The Kalman-filter technique is applied here for the first time using explicit exogenous variables. In particular real interest rates were found to explain a quarter of the increase in the Nairu between 1980 and 1995. This indicates the possibility of a long-run non-superneutrality of monetary policy.Nairu, Monetary Policy, Kalman Filter, Phillips curve, Superneutrality

Arbeitsmarktinstitutionen und Arbeitslosigkeit: Stand der wissenschaftlichen Diskussion

Seit geraumer Zeit besitzt die Reform des Arbeitmarktes in Deutschland eine hohe wirtschaftspolitische Priorität. Neben finanziellen Einsparungen erhofft man sich eine höhere Flexibilität auf dem Arbeitsmarkt bei gesteigerter Effizienz der Sozialsysteme. Auf längere Sicht sollen hierdurch mehr Wachstum und Beschäftigung entstehen. Von zentraler Bedeutung ist dabei die Frage, inwieweit institutionelle Gegebenheiten Rigiditäten und Ineffizienzen auf dem Arbeitsmarkt begründen. Im vorliegenden Bericht werden mit Blick auf Deutschland fünf neuere empirische Studien vorgestellt, die sich dieser Frage gewidmet haben. Es zeigt sich, dass makroökonomische Schocks den Anstieg der Arbeitslosigkeit in Deutschland von Mitte der 70er bis Mitte der 90er Jahre zu einem wesentlichen Teil erklären. Arbeitsmarktinstitutionen haben nach diesen Ergebnissen nur insofern einen Einfluss auf die Arbeitslosigkeit, als sie auf die Lohnbildung wirken und das Niveau der Lohnersatzleistung bestimmen. Simulationen mit diesen Modellen für Deutschland zeigen, dass weder die stärkere Regulierung des Arbeitsmarktes bis in die 70er Jahre noch die Deregulierung seither einen nennenswerten Einfluss auf den Pfad der Arbeitslosigkeitsentwicklung hatten

Arbeitsmarktinstitutionen und Arbeitslosigkeit: Stand der wissenschaftlichen Diskussion

Seit geraumer Zeit besitzt die Reform des Arbeitmarktes in Deutschland eine hohe wirtschaftspolitische Priorität. Neben finanziellen Einsparungen erhofft man sich eine höhere Flexibilität auf dem Arbeitsmarkt bei gesteigerter Effizienz der Sozialsysteme. Auf längere Sicht sollen hierdurch mehr Wachstum und Beschäftigung entstehen. Von zentraler Bedeutung ist dabei die Frage, inwieweit institutionelle Gegebenheiten Rigiditäten und Ineffizienzen auf dem Arbeitsmarkt begründen. Im vorliegenden Bericht werden mit Blick auf Deutschland fünf neuere empirische Studien vorgestellt, die sich dieser Frage gewidmet haben. Es zeigt sich, dass makroökonomische Schocks den Anstieg der Arbeitslosigkeit in Deutschland von Mitte der 70er bis Mitte der 90er Jahre zu einem wesentlichen Teil erklären. Arbeitsmarktinstitutionen haben nach diesen Ergebnissen nur insofern einen Einfluss auf die Arbeitslosigkeit, als sie auf die Lohnbildung wirken und das Niveau der Lohnersatzleistung bestimmen. Simulationen mit diesen Modellen für Deutschland zeigen, dass weder die stärkere Regulierung des Arbeitsmarktes bis in die 70er Jahre noch die Deregulierung seither einen nennenswerten Einfluss auf den Pfad der Arbeitslosigkeitsentwicklung hatten.

Hysteresis and Nairu in the Euro Area

This paper analyses the Nairu in the Euro Area and the influence that hysteresis had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early seventies. The Kalman-filter technique is applied here using explicit exogenous variables. In order to test for hysteresis, the dependence of the Nairu on actual unemployment and long-term unemployment is estimated and found to be significant for the Euro Area and Germany respectively. The existence of hysteresis effects implies the possibility of a long-run non-superneutrality of monetary policy

Estimating Germany's Potential Output

Potential output measures a country's attainable aggregate living standard and is thus one of the most important categories of economics. It is also a key indicator for monetary and fiscal policy. Despite its prominence, however, potential output is a difficult concept to pinpoint both theoretically and even more so empirically. The article discusses the reasons for the marked revisions of potential output estimates by major international organisations. The authors then present the results of our attempts to quantify Germany's potential output based on a production function approach coupled with the Kalman-filter technique to estimate the NAIRU. The authors find that potential output and potential output growth greatly depend on how the NAIRU and potential total factor productivity are modelled. Given the difficulties involved in robustly estimating potential output, especially in real time, economic policy makers need to learn to pursue their policy objectives without reference to this variable.Potential Output, Nairu, Kalman-filter, revisions

Changes in the Balance of Power Between the Wage and Price Setters and the Central Bank: Consequences for the Phillips Curve and the NAIRU

In this paper we introduce and test the hypothesis that the relation between inflation and unemployment has been in many countries subject to a significant change in the early 1990's after the disinflation period. That period began between 1975 and 1980 after the first (or the second) oil price shock in autumn 1973. During the disinflation period, inflation and unemployment were the result of the struggle between the wage and price setters trying to influence the distribution of income to their favour and the Central Bank fighting against inflation. Since the wage and price setters did not fully believe in an "unconditional" pursuit of the anti-inflationary policy, the result was a gradual decline of the inflation rate rendered possible by a rising rate of unemployment. Our hypothesis was inspired by the observation that the statistical Phillips curves are now rather flat in many countries. If such horizontal Phillips curves will also result when they are estimated taking into account the most important other factors influencing the inflation rate (mainly supply shocks) they may be explained by the hypothesis that during the 1990's, wage and price setters finally accepted the new rigour of the monetary policy and tried no more (nor had the market power { due to increasing globalisation and international competition) to pursue a policy which raises the inflation rate significantly above the target inflation rate of the Central Bank. In that case a "break" in the parameters of the Phillips- Curve should be observed. We use econometric methods to test whether the presumed \break" in the relation between inflation and unemployment can be shown to exist. We restrict our study to the four largest countries of the Euro area (Germany, France, Italy and Spain), the UK and the USA. The result are very different for the countries; therefore we intend in a further step to detect the reasons for there divergences