Measuring the NAIRU — A Structural VAR Approach

Hongmei Zhao; Vincent Hogan

doi:10.1007/s11459-011-0123-7

Front. Econ. China ›› 2011, Vol. 6 ›› Issue (1) : 76 -91. DOI: 10.1007/s11459-011-0123-7

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Measuring the NAIRU — A Structural VAR Approach

Hongmei Zhao ¹
, Vincent Hogan ²

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Abstract

This paper calculates the NAIRU for the US in a framework that allows inflation and unemployment to be jointly endogenous. We define the NAIRU as being the component of actual unemployment that is uncorrelated with inflation in the long run. We use a structural VAR to estimate the NAIRU and core inflation simultaneously and with greater precision than most of the previous literature. Our results show that the NAIRU fell dramatically at the end of the 1990s from 6.7% before 1997 to 5.2% afterwards.