A theory-consistent system approach for estimating potential output and the NAIRU

Apel, Mikael; Jansson, Per

doi:10.1016/s0165-1765(99)00111-1

Cited by 77 publications

(43 citation statements)

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“…In summary, our approach is based on theoretical considerations of the hybrid New Keynesian Phillips curve and consistent with as well as expanding standard approaches in the literature (Gordon (1997), Apel and Jansson (1999b), Gali andGertler (1999), Franz (2005), Fitzenberger et al (2007), Basistha and Nelson (2007), Koop and Onorante (2012), to name a few).…”

Section: Introductionmentioning

confidence: 67%

“…This questions the Phillips curve, that postulates a positive relationship between inflation and overheating in an economy, and is a central equation when estimating potential output or output gaps in a theory-consistent way (see Apel and Jansson 1999b). It is unclear, however, whether solely unemployment, output gaps and inflation are sufficient to identify the sustainable level of output in an economy, in particular during periods in which firms and households accumulate enormous debt to finance investment and growth and in which the monetary authority manages to keep inflation rates low, or whether the standard or also the New Keynesian Phillips curve misses relevant factors such as economy-wide financial conditions.…”

Section: Introductionmentioning

confidence: 99%

“…There are some approaches in the literature, see for instance Apel and Jansson (1999b), that include the first lag of the gap-variable in their Phillips curve specification. Thus, we check whether the gap variables are jointly different from zero which would confirm the validity of the Phillips curve implications.…”

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confidence: 99%

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The Phillips Curve: (In)Stability, the Role of Credit, and Implications for Potential Output Measurement

Schleer

Kappler

2014

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. The path of output prior to the financial and economic crisis turned out to be not sustainable and lower than previously estimated in some European crisis countries. Specifically, the output gaps have been underestimated (and inversely potential output overestimated) before the recent crisis. It is fair to say that the employed estimation techniques failed to provide valid real-time assessments of the state of the credit boom driven euro area economies. One reason for this may be the breakdown of the Phillips curve relationship during the last years. Against this backdrop, we comprehensively analyse the validity of the Phillips curve for five European countries with a focus on the recent crisis. We find that a mostly insignificant relation between inflation and the output gap or unemployment gap, which questions the adequacy of the Phillips curve to identify the sustainable level of output in an economy. The credit-driven boom in crisis countries has made clear that (disadvantageous) financial markets conditions may result in structural and long-term real economic distortions that are not yet taken into account in conventional methods for the estimation of potential output and the output gap. Since both, potential output and output gaps, are a key notion in policymaking, incorporating financial factors could improve the reliability of the estimates. Our results point in this direction.JEL classification: E32, E44, E60

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Section: Introductionmentioning

confidence: 67%

Section: Introductionmentioning

confidence: 99%

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The Phillips Curve: (In)Stability, the Role of Credit, and Implications for Potential Output Measurement

Schleer

Kappler

2014

SSRN Journal

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“…Apel and Jansson (1999) obtained estimates of the NAIRU and potential output for the U.K, U.S. and Canada, based on an unobserved components model of output, inflation and unemployment rates. Another important multivariate extension of the basic bivariate model is the production function approach (PFA) to the estimation of potential output and the output gap, according to which potential output is obtained from the trend, or "non-inflationary", levels of its structural determinants, such as productivity and factor inputs.…”

Section: Multivariate Extensionsmentioning

confidence: 99%

Structural Time Series Models for Business Cycle Analysis

Proietti¹

2009

Palgrave Handbook of Econometrics

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The chapter deals with parametric models for the measurement of the business cycle in economic time series. It presents univariate methods based on parametric trend-cycle decompositions and multivariate models featuring a Phillips type relationship between the output gap and inflation and the estimation of the gap using mixed frequency data. We finally address the issue of assessing the accuracy of the output gap estimates.

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“…Recent studies use filtering to estimate hidden state variables such as Apel and Jansson (1999), Laubach (2001), and Ferri, Greenberg, and Day (2003). But inflation expectation is simply set to inflation realized in last period, as U.S. inflation is relatively stable after 1990.…”

Section: Introductionmentioning

confidence: 99%

Estimation of NAIRU with Inflation Expectation Data

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Estimating natural rate of unemployment (NAIRU) is important for understanding the joint dynamics of unemployment, inflation, and inflation expectation. However, existing literature falls short in endogenizing inflation expectation together with NAIRU in a model consistent way. We develop and estimate a structural model with forward and backward looking Phillips curve. Inflation expectation is treated as a function of state variables and we use survey data as its observations. We find out that the estimated NAIRU using our methodology tracks the unemployment process closely except for the high inflation period around 1970. Moreover, the estimated Bayesian credible sets are narrower and our model leads to better inflation and unemployment forecasts. These results suggest that monetary policy was very effective during the sample periods and there was not much room for policy improvement. Terms of use: Documents in

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A theory-consistent system approach for estimating potential output and the NAIRU

Cited by 77 publications

References 4 publications

The Phillips Curve: (In)Stability, the Role of Credit, and Implications for Potential Output Measurement

The Phillips Curve: (In)Stability, the Role of Credit, and Implications for Potential Output Measurement

Structural Time Series Models for Business Cycle Analysis

Estimation of NAIRU with Inflation Expectation Data

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