Finance and Economics Discussion Series (FEDS)
January 2001
NAIRU Uncertainty and Nonlinear Policy Rules
Laurence H. Meyer, Eric T. Swanson, and Volker W. Wieland
Abstract:
Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. This paper offers a theoretical justification for such a nonlinear policy rule, and provides some empirical evidence on the relative performance of linear and nonlinear rules when there is heightened uncertainty about the NAIRU.
Keywords: Simple nonlinear policy rule, signal extraction with non-normal prior, nonlinear updating
PDF: Full Paper
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