This paper deals with a critical assessment and a reestimation of the \non{accelerating in ation rate of unemployment" (NAIRU) for Germany. There are quite a few obstacles to perceiving the NAIRU as an understandable and easy{to{use analytical instrument, suitable for economic policy: the possibility of a non{vertical Phillips curve (e.g. in times of low in ation), the occurrence of shocks and hysteresis effects, the (mis{)measurement of important variables such as in ation expectations, cointegration issues, and a time variability of the NAIRU and its confidence intervals. Despite many serious caveats a new attempt is made to estimate a NAIRU for Germany based on conventional Phillips curves as well as on new approaches such as using direct measures of in ationary expectations, the Kalman filter method, and the residual{based bootstrap procedure (in order to estimate confidence intervals). However, by any method, simple or complex, the NAIRU is very hard to determine and subject to considerable arbitrariness.

Franz, Wolfgang (2003), Will the (German) NAIRU Please Stand up?, ZEW Discussion Paper No. 03-35, Mannheim. Download


Franz, Wolfgang


NAIRU, unemployment, inflation, Phillips curve, natural rate, hysteresis, supply shocks, inflation expectations, Kalman filter, bootstrap