IDEAS home Printed from https://ideas.repec.org/a/boi/isrerv/v2y2004i2p125-154.html
   My bibliography  Save this article

The NAIRU in Israel: An Unobserved Components Approach

Author

Listed:
  • Amit Friedman

    (Bank of Israel)

  • Tanya Suchoy

    (Bank of Israel)

Abstract

The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilization period, as an unobserved stochastic variable, using state-of-the-art State Space Models. The NAIRU is identified by a Phillips curve equation, and is assumed to follow a random walk. The basic model is augmented by an equation that captures the persistence of the unemployment gap. We also use the joint system first introduced by Apel and Jansson (1999) to estimate potential output and the NAIRU simultaneously. Confidence intervals around the NAIRU were computed by a jackknife technique. The results indicate that the actual variation of unemployment has only a minor effect on the NAIRU, which remained relatively stable throughout the sample period. The state variables have sufficiently stable characteristics to be successfully predicted at least one step ahead. However, policy implications that may be derived are sometimes limited, as there is substantial uncertainty around the estimated NAIRU. No evidence for hysteresis was found. The estimates show that the disinflation process during the 1990s did not cause an increase in the NAIRU

Suggested Citation

  • Amit Friedman & Tanya Suchoy, 2004. "The NAIRU in Israel: An Unobserved Components Approach," Israel Economic Review, Bank of Israel, vol. 2(2), pages 125-154.
    • Handle: RePEc:boi:isrerv:v:2:y:2004:i:2:p:125-154
    as

    Download full text from publisher

    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/isrerv/IsER_2_2004_2_125-154.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brownstone, David, 1990. "Bootstrapping improved estimators for linear regression models," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 171-187.
    2. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
    3. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    4. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    5. Thomas Laubach, 2001. "Measuring The NAIRU: Evidence From Seven Economies," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 218-231, May.
    6. Li, Yikang, 1994. "Bootstrapping cointegrating regression," Economics Letters, Elsevier, vol. 44(3), pages 229-233.
    7. Yigal Menashe & Yossi Yakhin, 2004. "Mind the Gap: Structural and Nonstructural Approaches to Estimating Israel's Output Gap," Israel Economic Review, Bank of Israel, vol. 2(2), pages 79-106.
    8. Veall, Michael R, 1992. "Bootstrapping the Process of Model Selection: An Econometric Example," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(1), pages 93-99, Jan.-Marc.
    9. Watson, Mark W. & Engle, Robert F., 1983. "Alternative algorithms for the estimation of dynamic factor, mimic and varying coefficient regression models," Journal of Econometrics, Elsevier, vol. 23(3), pages 385-400, December.
    10. Gordon de Brouwer, 1998. "Estimating Output Gaps," RBA Research Discussion Papers rdp9809, Reserve Bank of Australia.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alon Binyamini & Assaf Razin, 2008. "Inflation-Output Tradeoff As Equilibrium Outcome of Globalization," Israel Economic Review, Bank of Israel, vol. 6(1), pages 109-134.
    2. Yang, Qing & Hou, Xiaochao & Zhang, Lei, 2018. "Measurement of natural and cyclical excess capacity in China's coal industry," Energy Policy, Elsevier, vol. 118(C), pages 270-278.
    3. Patrick Wilson & Simon Stevenson & Ralf Zurbruegg, 2007. "Foreign Property Shocks and the Impact on Domestic Securitized Real Estate Markets: An Unobserved Components Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 34(3), pages 407-424, April.
    4. Alon Binyamini & Assaf Razin, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy as an Equilibrium Outcome of Globalization," Working Papers 232007, Hong Kong Institute for Monetary Research.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tanya Suchoy & Amit Friedman, 2002. "The NAIRU in Israel: an Unobserved Components Approach," Bank of Israel Working Papers 2002.08, Bank of Israel.
    2. Kromphardt, Jürgen & Logeay, Camille, 2007. "Changes in the Balance of Power Between the Wage and Price Setters and the Central Bank: Consequences for the Phillips Curve and the NAIRU," Kiel Working Papers 1354, Kiel Institute for the World Economy (IfW Kiel).
    3. Franz Wolfgang, 2001. "Neues von der NAIRU? / News from the NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 221(3), pages 256-284, June.
    4. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa : eine Bestandsaufnahme (Structural unemployment in Europe * an inventory)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 411-427.
    5. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute of Labor Economics (IZA).
    6. Nelson H. Barbosa Filho, 2005. "Estimating Potential Output : a Survey of the Alternative Methods and their Applications to Brazil," Discussion Papers 1092, Instituto de Pesquisa Econômica Aplicada - IPEA.
    7. Peter Isard & Douglas Laxton & Ann-Charlotte Eliasson, 1999. "Simple Monetary Policy Rules Under Model Uncertainty," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 537-577, November.
    8. Robert M. Coen, 1999. "The NAIRU and Wages in Local Labor Markets," American Economic Review, American Economic Association, vol. 89(2), pages 52-57, May.
    9. Alfred Stiassny, 1998. "Wage Setting and Hysteresis in Unemployment," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(1), pages 79-107, January.
    10. Skott, Peter, 2005. "Fairness as a source of hysteresis in employment and relative wages," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 305-331, July.
    11. Beissinger, Thomas, 2003. "Strukturelle Arbeitslosigkeit in Europa: Eine Bestandsaufnahme," University of Regensburg Working Papers in Business, Economics and Management Information Systems 389, University of Regensburg, Department of Economics.
    12. Antonella Palumbo, 2008. "I metodi di stima del PIL potenziale tra fondamenti di Teoria economica e Contenuto empirico," Departmental Working Papers of Economics - University 'Roma Tre' 0092, Department of Economics - University Roma Tre.
    13. Rodríguez, Gabriel, 2010. "Using A Forward-Looking Phillips Curve to Estimate the Output Gap in Peru," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 6(1-2), pages 1-13, April.
    14. Richardson Kojo Edeme, 2018. "Providing an Empirical Insight into Nigeria’s Non-acceleration Rate of Unemployment," Journal of Development Policy and Practice, , vol. 3(2), pages 179-190, July.
    15. Hein, Eckhard, 2001. "Institutions and macroeconomic performance: Central bank independence, labour market institutions and the perspectives for inflation and employment in the European Monetary Union," WSI Working Papers 95, The Institute of Economic and Social Research (WSI), Hans Böckler Foundation.
    16. Cui, W. & Härdle, W.K. & Wang, W., 2016. "Estimation of NAIRU with In ation Expectation Data," Working Papers 16/05, Department of Economics, City University London.
    17. Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
    18. Fernando Siqueira Dos Santos, 2016. "Okun’S Law And Labor Productivity In Brazil," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 232, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    19. Salemi, Michael K, 1999. "Estimating the Natural Rate of Unemployment and Testing the Natural Rate Hypothesis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-25, Jan.-Feb..
    20. Croitoru, Lucian, 2011. "Three Unemployment Rates Relevant To Monetary Policy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 213-238, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boi:isrerv:v:2:y:2004:i:2:p:125-154. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yossi Yakhin (email available below). General contact details of provider: https://edirc.repec.org/data/boigvil.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.