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Measuring the NAIRU — A structural VAR approach

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  • Hongmei Zhao
  • Vincent Hogan

Abstract

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.
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Suggested Citation

  • Hongmei Zhao & Vincent Hogan, 2011. "Measuring the NAIRU — A structural VAR approach," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(1), pages 76-91, March.
    • Handle: RePEc:spr:frecch:v:6:y:2011:i:1:p:76-91
    DOI: 10.1007/s11459-011-0123-7
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    More about this item

    Keywords

    NAIRU; inflation; unemployment; VAR; E24; E25; E31;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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