U.S. natural rate dynamics reconsidered

Arbeitspapier

Several features of the U.S. natural rate of unemployment are reconsidered through specification and testing of econometric models. Traditionally, the choice has been between a wage Phillips curve model, PCM, or an equilibrium correction wage curve model, WECM. The models proposed in this paper feature extended equilibrium correction which reduces the consequences for natural rate dynamics of choosing between wage models. In order for the difference between PCM and WECM to become important, the extended equilibrium correction mechanism must be ‘switched off’ by restrictions. These restrictions are rejected when tested. The analysis supports the original view that natural rates depend on the macroeconomic system, rather than just the wage Phillips curve. The analysis indicates a reduction of the natural rate in the course of the 1990s, due to low worker bargaining power and other structural changes. The estimated reduction is approximately 0.5 0.8 percentage points, which is less than existing results based on Phillips curve estimation.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Memorandum ; No. 2006,13

Classification and Topics

• Classification: Wirtschaft ; Model Evaluation, Validation, and Selection ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Price Level; Inflation; Deflation ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Wage Level and Structure; Wage Differentials
• Subject: US unemployment ; natural rate ; NAIRU ; equilibrium correction ; Phillips curve ; Natürliche Arbeitslosigkeit ; Lohnbildung ; Phillips-Kurve ; USA ; Ökonometrisches Modell

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bårdsen, Gunnar ; Nymoen, Ragnar
• Event: Veröffentlichung
• (who): University of Oslo, Department of Economics
• (where): Oslo
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/63081