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Estimating a New Zealand NAIRU

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Abstract

This paper estimates the non-increasing inflation rate of unemployment or NAIRU for New Zealand. A NAIRU that varies over time has important implications in considering inflationary pressures. This paper estimates the time-varying NAIRU using a Kalman filter on a reduced form approach and extends previous studies in several ways. Using different model specifications and dependent variables suggests a band of NAIRU estimates of between four and five percent (with further error bands around that). The results of this paper indicate that the NAIRU is a relevant concept and the unemployment gap should be one of the factors considered when assessing inflationary pressure.

Suggested Citation

  • Kam Leong Szeto & Melody Guy, 2004. "Estimating a New Zealand NAIRU," Treasury Working Paper Series 04/10, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:04/10
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp04-10.pdf
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    1. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
    2. 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.
    3. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246, National Bureau of Economic Research, Inc.
    4. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    5. 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.
    6. Skalin, Joakim & Teräsvirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 6(2), pages 202-241, April.
    7. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
    8. repec:cup:macdyn:v:6:y:2002:i:2:p:202-41 is not listed on IDEAS
    9. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 17, European Central Bank.
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    1. repec:cnb:ocpubv:as15 is not listed on IDEAS
    2. repec:cnb:ocpubv:as17 is not listed on IDEAS
    3. Camarero, Mariam & Carrion-i-Silvestre, Josep Lluis & Tamarit, Cecilio, 2005. "Unemployment dynamics and NAIRU estimates for accession countries: A univariate approach," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 584-603, September.
    4. El Alaoui, Aicha & Ezzahidi, Elhadj & Eladnani, Mohamed Jellal, 2013. "Etimating NAIRU: the Morocco case," MPRA Paper 56815, University Library of Munich, Germany, revised Apr 2014.
    5. Farzana Shaheen & Azad Haider & Sajid Amin Javed, 2011. "Estimating Pakistan's Time Varying Non-Accelerating Inflation Rate of Unemployment: An Unobserved Component Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 172-179.
    6. repec:cnb:ocpubv:as16 is not listed on IDEAS

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    More about this item

    Keywords

    NAIRU; Kalman filter; Unemployment; Phillips Curve; New Zealand;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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