NAIRU as a proxy for business cycle synchronization analysis in Euro area economy: An empirical approach

• Autor(a) principal: Nunes, Luís Afonso Rosa Alves Fernandes
• Data de Publicação: 2015
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/11518
• topic: NAIRU; Sincronização -- Synchronization; EKF; Zona euro -- Euro zone

Estimates of NAIRU (Non-Accelerating Inflation Rate of Unemployment) affect indirectly the assessment of structural balance, which has been increasingly used by policymakers as an indicator for the needs of an economy. Therefore, the study of NAIRU deserves a special attention given that it has necessarily impact on business cycle developments. With the previous reasoning in mind, we analyze the NAIRU synchronization between Euro Area member states from 1999 until 2014. Such exercise is useful to assess whether their cyclical position moves in tandem with each other and a single policy is supported in such context or not. The NAIRU estimates are obtained by employing a system of equations that combines a Phillips curve with the Okun law and allows the parameters to vary over time. The estimation problem is handled via Extended Kalman Filter (EKF), which is justified by the presence of non-linearity in the problem. Our results suggest that Euro Area member states have a low degree of synchronization, contrarily to what would be desirable in a monetary union context. It is, therefore, crucial to stimulate the further integration at a European Union (EU) level in the future as one of the possible paths to take with the objective of promoting economic convergence in the region.