ESTIMATING NAIRU IN IRAN AND ITS IMPLICATIONS FOR ECONOMIC POLICY

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AKHBARI MOHAMMAD; MOHAGHEGHNIA MOHAMMAD JAVAD

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Journal: Journal of Quantitative Economics Year:2015 | Volume:11 | Issue:4 (43) Page(s): 113-134

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Title

ESTIMATING NAIRU IN IRAN AND ITS IMPLICATIONS FOR ECONOMIC POLICY

Author(s)

AKHBARI MOHAMMAD | MOHAGHEGHNIA MOHAMMAD JAVAD | Issue Writer Certificate

Keywords

INFLATIONQ2

NAIRUQ2

STATE-SPACE MODELQ2

Abstract

Concern with equilibrium rate of unemployment, NAIRU is one of the most important one for a central bank, since it focuses directly on INFLATION. To estimate NAIRU, we need Phillips equation. The Phillips equation we have considered here is very close to the so- called "Triangle Model" suggested by Gordon, where INFLATION rate is determined by three factors: adaptive expectations and inertia, excess or shortage of demand- estimated by the gap between the actual unemployment rate and the NAIRU- and supply shock variables. We consider the NAIRU as a time-varying parameter and is estimated by a STATE-SPACE MODEL composed of a random walk process that describes its variations over time and of a Phillips equation and Okun's law. The results show that the marginal and average of NAIRU of Iran for the studied period are around 11.07 percent and 13.48 percent respectively; that are high in comparison with developed countries. This means that implementing demand oriented policies to reduce unemployment rate without increasing product capacities may lead to higher INFLATION. Therefore, it is suggested that policymakers should try to increase labor and capital productivities as well as improvement of business indices.

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APA: Copy

AKHBARI, MOHAMMAD, & MOHAGHEGHNIA, MOHAMMAD JAVAD. (2015). ESTIMATING NAIRU IN IRAN AND ITS IMPLICATIONS FOR ECONOMIC POLICY. JOURNAL OF QUANTITATIVE ECONOMICS (QUARTERLY JOURNAL OF ECONOMICS REVIEW), 11(4 (43)), 113-134. SID. https://sid.ir/paper/110719/en

Vancouver: Copy

AKHBARI MOHAMMAD, MOHAGHEGHNIA MOHAMMAD JAVAD. ESTIMATING NAIRU IN IRAN AND ITS IMPLICATIONS FOR ECONOMIC POLICY. JOURNAL OF QUANTITATIVE ECONOMICS (QUARTERLY JOURNAL OF ECONOMICS REVIEW)[Internet]. 2015;11(4 (43)):113-134. Available from: https://sid.ir/paper/110719/en

IEEE: Copy

MOHAMMAD AKHBARI, and MOHAMMAD JAVAD MOHAGHEGHNIA, “ESTIMATING NAIRU IN IRAN AND ITS IMPLICATIONS FOR ECONOMIC POLICY,” JOURNAL OF QUANTITATIVE ECONOMICS (QUARTERLY JOURNAL OF ECONOMICS REVIEW), vol. 11, no. 4 (43), pp. 113–134, 2015, [Online]. Available: https://sid.ir/paper/110719/en

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