A Kalman Filter Approach to Estimating the UK NAIRU

Bank of England Working Paper No. 179

37 Pages Posted: 3 Sep 2003

See all articles by Jennifer V. Greenslade

Jennifer V. Greenslade

Bank of England - External MPC Unit

Richard G. Pierse

University of Surrey - Department of Economics; National Institute of Economic and Social Research (NIESR)

Jumana Saleheen

Bank of England

Date Written: March 2003

Abstract

In this paper, the Kalman filter method is applied to UK Phillips-curve models and estimates are derived for the NAIRU from 1973 to 2000. The resulting profiles suggest that the NAIRU peaked around the mid-1980s and fell back thereafter. Structural changes in the labour market have reduced inflationary pressure from that source, and we suggest that temporary effects from real import prices and real oil prices were an important additional downward influence on inflation in the latter half of the 1990s. Some of the uncertainties around our NAIRU estimates are shown. But, even though there may be uncertainty about exactly where the NAIRU is, a variety of models suggest that unemployment was below the NAIRU for much of the second half of the 1990s.

Keywords: Phillips curve, Kalman filter

JEL Classification: E24, E31

Suggested Citation

Greenslade, Jennifer V. and Pierse, Richard G. and Saleheen, Jumana, A Kalman Filter Approach to Estimating the UK NAIRU (March 2003). Bank of England Working Paper No. 179, Available at SSRN: https://ssrn.com/abstract=425762 or http://dx.doi.org/10.2139/ssrn.425762

Jennifer V. Greenslade (Contact Author)

Bank of England - External MPC Unit ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Richard G. Pierse

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

Jumana Saleheen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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