Minding the Gap: Central Bank Estimates of the Unemployment Natural Rate

  • Authors:

  • Sharon Kozicki;P. A. Tinsley

  • Affiliations:

  • Research Department, Bank of Canada, Ottawa, Canada K1A 0G9;Department of Economics, George Washington University, Washington, USA 20007

  • Venue:
  • Computational Economics
  • Year:
  • 2006

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Abstract

A time-varying parameter framework is suggested for use with real-time multiperiod forecast data to estimate implied forecast equations. The framework is applied to historical briefing forecasts prepared for the Federal Open Market Committee to estimate the U.S. central bank's ex ante perceptions of the natural rate of unemployment. Relative to retrospective estimates, empirical results do not indicate severe underestimation of the natural rate of unemployment in the 1970s.