Estimating Pakistan’s Time Varying Non-Accelerating Inflation Rate of Unemployment: An Unobserved Component Approach

Farzana Shaheen, Azad Haider, Sajid Amin Javed

Abstract


This paper envisages estimating the Time-Varying Non-Accelerating Inflation Rate of Unemployment (TV-NAIRU) as an unobserved stochastic variable for Pakistan over the time period 1973-74 to 2007-08 using Kalman filter. Results of the study are evident that TV-NAIRU increased from 5.3 percent (1990-91) to 8.12 percent (2004-05) and falls to 6.17 percent again in 2007-08 which is above the actual unemployment rate. The results also indicate that the NAIRU is a relevant concept and the unemployment gap should be one of the factors considered when assessing inflationary pressure in Pakistan.

Keywords: Pakistan; Unemployment; Inflation; NAIRU; Phillips Curve

JEL Classifications: E0; E23; E31


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