NAIRU and Core Inflation Simultaneous Measurement in Iran Economy

Document Type : Original Article

Authors

1 PhD in Economics, Shahid Beheshti University

2 Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University

3 Department of Economics, Faculty of Economics and Political Sciences, Shahid Beheshti University

Abstract

Low unemployment rate and access to Non-Accelerating inflation rate are considered as key targets for policy makers. Thus, measuring the Non-Accelerating inflation rate of unemployment (NAIRU) is very important.
In this paper, we investigate the NAIRU and core inflation with a structural approach in which the two factors respond to each other simultaneously. The NAIRU is defined as a component of the real unemployment rate that is uncorrelated with inflation in the long run. In addition, the core inflation is defined as a component of real inflation that is uncorrelated with output and unemployment in medium and long run.
The findings of this paper shows that the trade-off between inflation and unemployment rate as predicted by traditional short and long run Philips Curve theory cannot be confirmed by the statistical data. Contrary to the primary conception, NAIRU and core inflation rate are time-varying and not fixed. 
In This paper, also, there is no difference between NAIRU and core inflation with real unemployment and inflation respectively. That is, unemployment and inflation rate phenomena in Iranian economy have long term and structural nature.

Keywords

References

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Journal of Economics and Modelling
Volume 2, 7-8
March 2012
Pages 81-115

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