THE NAIRU CONCEPT - MEASUREMENT UNCERTAINTIES, HYSTERESIS AND ECONOMIC POLICY ROLE

Abstract

In this paper, we present nairu estimates for the US, Japan and the new euro area. In doing so, the paper asks whether continues to stand up to rigorous analysis in terms of its theoretical underpinnings and empirical applicability. In particular, we discuss the many sources of uncertainty surrounding nairu calculations - such as model and data uncertainty. We discuss whether this uncertainty undermines the usefulness of nairu measures for policy makers. We conclude that while theoretically the nairu is still a useful concept its extensive empirical inadequacies render it less than useful in the macro policy context, although a case can still be made for sustaining its use as a structural indicator for cross country, labour flexibility, comparisons.