NAIRU Estimates for Germany: New Evidence on the Inflation–Unemployment Tradeoff

Florian Kajuth

German Economic Review, 2016, vol. 17, issue 1, 104-125

Abstract: Meaningful estimates of the non-accelerating inflation rate of unemployment (NAIRU) within a Phillips curve framework require an identified tradeoff between inflation and unemployment. However, observations of inflation and unemployment are equilibrium points giving rise to a simultaneity problem. We assess conventional identifying assumptions in the literature on the German NAIRU in a general bi-variate equations system of inflation and unemplyoment. We use a data-driven method for identification based on shifts in the relative volatility of shocks to unemployment and inflation to identify the tradeoff for Germany. Our results support models which estimate a contemporaneous effect of unemployment on inflation and those which model inflation and unemployment jointly.

Keywords: non-accelerating inflation rate of unemployment; Phillips curve; inflation-unemployment tradeoff; identification through heteroskedasticity (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1111/geer.12055

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