How can you calculate NAIRU for Q3 and Q4. I know Q3 is between July-September w
ID: 1201248 • Letter: H
Question
How can you calculate NAIRU for Q3 and Q4. I know Q3 is between July-September while Q4 is between October-December.
In this table, I found
Year
Real GDP
Unemployment
CPI
Real GDPpotential
NAIRU
2015 – Q3
$16,414.0 billion
5.167%
238.305
$16,746 billion
2015 – Q4
$16,470.6 billion
5.%
237.233
$16,809 billion
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Year
Unemployment
CPI
NAIRU
July
5.3%
238.654
August
5.1%
238.316
September
5.1%
237.945
October
5%
237.838
November
5%
237.336
December
5%
236.525
I found the data online and got the Real GDP and GDP potential quarterly, but for Unemployment and CPI, I used the averages of the number from the table (months). How can I solve for NAIRU? Please don't tell me to plot it into a graph and find the slope because I don't know how to do that on excel. Isn't there another way to solve it somehow? Thanks.
Year
Real GDP
Unemployment
CPI
Real GDPpotential
NAIRU
2015 – Q3
$16,414.0 billion
5.167%
238.305
$16,746 billion
2015 – Q4
$16,470.6 billion
5.%
237.233
$16,809 billion
Explanation / Answer
The NAIRU: Non-Accelerating Inflation Rate of Unemployment
The NAIRU
A key concept in macroeconomic policy is the idea of the NAIRU: the Non-Accelerating-Inflation Rate of Unemployment, the rate of unemployment at which there is neither upward pressure on inflation (from producers taking advantage of the market power given them by bottlenecks, and from workers using the market power provided by a tight labor market to try to realize wage growth aspirations higher than the rate of productiivty growth) nor downward pressure on inflation (from customers taking advantage of the market power given them by excess capacity, and from firms using the market power provided by high unemployment to try to decrease the rate of wage growth).
Take the data for inflation and unemployment and graph the unemployment rate against inflation lagged one year and enter it into whatever software you are using.
Find the line of best fit. Ordinary least squares regression is suitable for this. The curve you find is known as the Phillips curve.
Find the slope of the Phillips curve.
Subtract the slope of the Phillips curve from the unemployment rate of the year you are trying to calculate the NAIRU for.
The resulting number is the NAIRU.
there is no other way
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