Measuring the NAIRU with Reduced Uncertainty: A Multiple-Indicator Common-Cycle Approach

@article{Basistha2008MeasuringTN,
  title={Measuring the NAIRU with Reduced Uncertainty: A Multiple-Indicator Common-Cycle Approach},
  author={Arabinda Basistha and Richard Startz},
  journal={The Review of Economics and Statistics},
  year={2008},
  volume={90},
  pages={805-811}
}
Standard estimates of the NAIRU or natural rate of unemployment are subject to considerable uncertainty. We show in this paper that using multiple indicators to extract an estimated NAIRU cuts in half uncertainty as measured by variance and gives a 33 reduction in the confidence band. The inclusion of an Okun's Law relation is particularly valuable. The essential notion is the existence of a common cyclical force driving the macroeconomic variables. Model comparisons based on the use of Bayes… CONTINUE READING
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