A Unified Approach to Measuring u*

Richard Crump, Stefano Eusepi, Marc Giannoni and Aysegul Sahin

No 25930, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach which comprises reduced form models and DSGE models relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a forward-looking Phillips curve linking inflation to current and expected deviations of unemployment from its unobserved natural rate. We estimate that the natural rate of unemployment is around 4.0% toward the end of 2018 and that the unemployment gap is roughly closed. Identification of a secular downward trend in the unemployment rate, driven solely by the inflow rate, facilitates the estimation of u*. We identify the increase in labor force attachment of women, decline in job destruction and reallocation intensity, and dual aging of workers and firms as the main drivers of the secular downward trend in the inflow rate.

JEL-codes: D84 E24 E31 E32 J11 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Note: AG EFG LS ME PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Published as Richard K. Crump & Marc Giannoni & Stefano Eusepi & Aysşegül Şahin, 2019. "A Unified Approach to Measuring u*," Brookings Papers on Economic Activity, vol 2019(1), pages 143-238.

Downloads: (external link)
http://www.nber.org/papers/w25930.pdf (application/pdf)

Related works:
Journal Article: A Unified Approach to Measuring u* (2019)
Working Paper: A Unified Approach to Measuring u* (2019)
Working Paper: A unified approach to measuring u* (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:25930

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25930

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().