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​Estimating a Time-Varying Non-Accelerating Inflation Rate of Unemployment and Unemployment Gap: Evidence from the Philippines


The unemployment gap, defined as the difference between the observed unemployment rate and the non-accelerating inflation rate of unemployment (NAIRU), is an indicator of spare capacity in an economy which could signal the extent of inflationary pressures. Thus, estimating the NAIRU and the unemployment gap can serve as useful guides for central banks in setting monetary policy. In this paper, the Kalman filter is applied to an expectations-augmented Phillips curve using four different measures of inflation – headline inflation, core inflation, GDP deflator inflation, and PCE deflator inflation - to derive the NAIRU and unemployment gap estimates of the Philippines from 1990 to 2022. Model estimates suggest that the NAIRU is sensitive to the measure of inflation used, specifications of the model, and availability of new data.


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