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The non-accelerating inflation rate of unemployment (NAIRU) in a small open economy: The irish context

Aidan Meyler

MPRA Paper from University Library of Munich, Germany

Abstract: In Ireland the link between real disequilibrium (such as the unemployment gap) and inflation (either price or wage) is blurred by external factors, operating through traded goods price inflation. Attempts to extract information about the unobservable NAIRU from aggregate inflation measures, such as the HICP or wages inflation, are likely to be swamped by these external factors. This paper uses a measure of ‘domestically generated’ inflation (defined as the gap between the services inflation rate and the goods inflation rate), to capture domestic inflationary pressures arising from the labour market. A strong relationship is seen to exist between ‘domestically generated’ inflation and labour market tightness. The results also suggest that the NAIRU may not have varied significantly since 1979, despite the large movements in unemployment over the same period.

Keywords: Ireland; unemployment; inflation; traded goods; NAIRU domestically generated inflation (search for similar items in EconPapers)
JEL-codes: E31 E24 C62 (search for similar items in EconPapers)
Date: 1999-12
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Published in Central Bank and Financial Services Authority of Ireland Technical Paper Series 5/RT/99.1999(1999): pp. 1-67

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Working Paper: The Non-Accelerating Inflation Rate of Unemployment (NAIRU) in a Small Open Economy: The Irish Context (1999) Downloads
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