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Estimating the natural rate of unemployment in euro-area countries with co-integrated systems

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  • Sven Schreiber

    (IMK - Macroeconomic Policy Institute - Hans Boeckler Foundation)

Abstract

Given that for France, Germany, Italy, and the Netherlands the unemployment rates are best classified as I(1), we apply permanent-transitory decompositions based on cointegrated VARs with relevant variables (labor productivity, wages, tax wedges, foreign relative prices) to estimate the time-varying natural unemployment rates. In general all variables seem to matter, and the results are quite different from published OECD Nairus. Our implied unemployment gaps are better than the OECD gaps in predicting unemployment changes and inflation gaps, but they are (except for Italy) as bad as the OECD gaps for forecasting inflation changes.

Suggested Citation

  • Sven Schreiber, 2011. "Estimating the natural rate of unemployment in euro-area countries with co-integrated systems," Post-Print hal-00671241, HAL.
    • Handle: RePEc:hal:journl:hal-00671241
    DOI: 10.1080/00036846.2010.539548
    Note: View the original document on HAL open archive server: https://hal.science/hal-00671241
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