The Phillips Curve and NAIRU Revisited : New estimates for Germany


Fitzenberger, Bernd ; Franz, Wolfgang ; Bode, Oliver


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URL: http://ub-madoc.bib.uni-mannheim.de/1790
URN: urn:nbn:de:bsz:180-madoc-17906
Document Type: Working paper
Year of publication: 2007
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C22 E24 E31 ,
Subject headings (SWD): Phillips-Kurve , Arbeitslosigkeit , Schätzung , Deutschland
Keywords (English): NAIRU , unemployment , inflation , Phillips curve , Okun’s Law , German unification , Kalman Filter , partially linear model
Abstract: This paper provides new estimates of a time–varying NAIRU for Germany taking account of the structural break caused by German unification based on the Kalman Filter and on a partially linear model as two alternatives. Estimating a standard Phillips curve, the sum of coefficients associated with expected inflation is far beyond unity, whatever measure of expected inflation rates is employed. Therefore, either the NAIRU concept is not applicable to Germany or, as it is our suggestion, one estimates the unemployment rate that is compatible with a tolerable inflation rate of say 2 percent following roughly the inflation target put forward by the European Central Bank. The estimates presented in this paper suggest that the NAIRU compatible with 2 percent inflation in Germany is currently around 7 percent if the definition of unemployment follows the concept of the ILO. In contrast to the consensus in the literature, our estimates suggest furthermore that the NAIRU in Germany has not increased since the early 1990’s.
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Fitzenberger, Bernd ; Franz, Wolfgang ; Bode, Oliver (2007) The Phillips Curve and NAIRU Revisited : New estimates for Germany. Open Access [Working paper]
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