In search of the natural rate of unemployment

The natural rate of unemployment can be measured as the time-varying steady state of a structural vector autoregression. For post-War US data, the natural rate implied by this approach is more volatile than most previous estimates, with its movements accounting for the bulk of the variation in the u...

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Bibliographic Details
Published in:Journal of monetary economics 2007-03, Vol.54 (2), p.550-564
Main Authors: King, Thomas B., Morley, James
Format: Article
Language:English
Subjects:
Data analysis
Economic theory
Inflation
Labor market
Labour economics
Labour market
Labour productivity
Natural rate of unemployment
Phillips curve
Real wages
Search theory
Sectoral shifts
Structural vector autoregression
Studies
U.S.A
Unemployment
Vector-autoregressive models
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Summary:The natural rate of unemployment can be measured as the time-varying steady state of a structural vector autoregression. For post-War US data, the natural rate implied by this approach is more volatile than most previous estimates, with its movements accounting for the bulk of the variation in the unemployment rate, as well as substantial portions of the variation in aggregate output and inflation. These movements, in turn, can be related to variables associated with labor-market search theory, including unemployment benefits, labor productivity, real wages, and sectoral shifts in the labor market. There is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment, supporting the existence of a short-run Phillips curve.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2005.11.002