Estimation of Non-Accelerating Inflation Rate of Unemployment (NAIRU) and Potential Output (in Persian)

Amir Khalessi and Sima Siami Namini
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Amir Khalessi: Iran
Sima Siami Namini: Iran

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2004, vol. 9, issue 3, 67-94

Abstract: This paper tries to survey and estimate Non-Accelerating Inflation Rate of Unemployment (NAIRU) and potential output. It uses the unobserved components model to propose a new method. The model consists of Ukan Law equations and Philips Curve. It uses unobservable key economic variable in the form of unobserved random trends in an equation system of three variables namely unemployment, gross domestic product (GDP) and inflation rate. The model parameters are estimated through maximum likelihood method and Kalman Filter. Unobserved components are estimated by means of soothing algorithm. The findings of estimation show that the production gap has negative relationship with the deviation of unemployment from Non-Accelerating Inflation Rate of Unemployment (NAIRU). The effect of business cycles on unemployment and inflation rates has been negative. This means that if real unemployment rate reaches the Non-Accelerating Inflation Rate of Unemployment (NAIRU), the economy will be at the maximum level of production free from inflation pressure. According to the results of the paper, this rate has been estimated 7 percent in Iran during 1989-2002.

Date: 2004
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