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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 factors favor the idea of a common cyclical component. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Abstract.  Univariate correlated trend cycle models are highly sensitive to the specifications of breaks in the data. This paper argues, using Monte Carlo experiments, that a bivariate correlated unobserved components (UC) framework with breaks delivers substantially more accurate results for the trend‐cycle parameters than the corresponding univariate frameworks in a finite sample size. The paper estimates stochastic trend and cyclical fluctuations in Canada from a bivariate UC model. Results show a fairly volatile stochastic trend after the drift break and the negative trend‐cycle shock correlation are accounted for. The estimated cyclical component is large, persistent, and consistent with ECRI denoted Canadian recessions.

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The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.JEL Codes: F35, O24.

This paper examines the effect of monetary policy surprises on energy prices at intraday, daily, and monthly frequencies. We measure monetary policy shocks using changes in interest rate futures prices that capture unexpected changes in the fed funds target rate. We find a significant response of energy prices to surprise changes in the fed funds target rate in an intraday window immediately following the monetary announcement. However, the accumulated responses of energy prices to monetary shocks over a period of several days after the announcement are statistically insignificant. We also use fed funds futures data to identify the contemporaneous impact of monetary policy shocks on oil prices in a monthly structural vector autoregressive (VAR) setup. We find no statistically significant effect of federal funds rate shocks on oil prices. The VAR estimates support the assumption of no contemporaneous feedback from monetary policy to energy prices.