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ESTIMATING THE NATURAL RATE OF HOURS

Published online by Cambridge University Press:  19 September 2017

Tino Berger  and
Hauke Vierke
Tino Berger*
Affiliation:
Göttingen University
Hauke Vierke
Affiliation:
Ghent University
*
Address correspondence to: Tino Berger, University of Goettingen, Platz der Goettinger Sieben 3, 37036 Goettingen, Germany; e-mail: tino.berger@wiwi.uni.goettingen.de.
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Abstract

This paper proposes an alternative measure for the slack of the aggregate labor market. The natural rate of hours holds valuable information about the state of the labor market that is not reflected by conventional measures, such as the equilibrium rate of unemployment, because it takes the intensive margin into account and is robust to variations in labor force participation. We set up and estimate a multivariate unobserved-components model using information on GDP, inflation, and hours worked, and apply it to the United States and Germany. The estimated hours gap outperforms conventional unemployment gap measures in a Taylor rule by formal model comparison.

Keywords

Natural RateUnobserved-Components ModelTaylor Rule
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 6 , September 2017 , pp. 1426 - 1453
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

For helpful comments we thank Freddy Heylen, Gerdie Everaert, Irina Panovska, and participants at the 20th SNDE Annual Symposium, the CMR Lunch Seminar at the University of Cologne, the 7th ifo Workshop on Macroeconomics and the Business Cycle, and the Baltic Sea Colloquium. Hauke Vierke acknowledges financial support from the Friedrich-Ebert-Stiftung and from Ghent University's Special Research Fund (BOF).

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