A Unified Approach to Measuring u* / Richard K. Crump, Stefano Eusepi, Marc Giannoni, Ayşegül Şahin.

Format:

Book

Author/Creator:

Crump, Richard K.

Contributor:

National Bureau of Economic Research.

Eusepi, Stefano.

Giannoni, Marc.

Şahin, Ayşegül.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25930.

NBER working paper series no. w25930

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach which comprises reduced form models and DSGE models relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a forward-looking Phillips curve linking inflation to current and expected deviations of unemployment from its unobserved natural rate. We estimate that the natural rate of unemployment is around 4.0% toward the end of 2018 and that the unemployment gap is roughly closed. Identification of a secular downward trend in the unemployment rate, driven solely by the inflow rate, facilitates the estimation of u*. We identify the increase in labor force attachment of women, decline in job destruction and reallocation intensity, and dual aging of workers and firms as the main drivers of the secular downward trend in the inflow rate.

Notes:

Print version record

June 2019.