Testing Steady-State Implications for the NAIRU

Abstract

Estimates of the NAIRU are usually derived either from a Phillips curve or from a wage curve. This paper investigates the correspondence between the operational NAIRU-concepts and the steady state of a dynamic wage-price model. We derive the parameter restrictions that secure that correspondence.The full set of restrictions can be tested by econometric analysis of the wageprice system, and this method is demonstrated for Norwegian data. A set of necessary conditions can be tested from estimated wage curves alone. Existing international evidence from empirical wage equations are re-interpreted in light of these conditions.