Incorporating Anchored Inflation Expectations in the Phillips Curve and in the Derivation of OECD Measures of Equilibrium Unemployment

Abstract

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Calibrating GDP fan charts using probit models with a comparison to the approaches of the Bank of England and Riksbank

“…recent revisions to the methodology underlying the derivation of the unemployment gap are likely to reduce the extent of real-time revisions (Rusticelli et al, 2015) 6. Keeping the same specification, but shortening the sample period to begin in 1980, gives a similar or improved goodness of fit (as measured either by the Mcfadden Rsqd or the % of correct predictions), with virtually all coefficients remaining statistically significant (the only exceptions being the unemployment gap at 4 and 6 quarter horizons in the probit models for Sweden and the private credit variables at 2 and 4 quarter horizons in the probit models for the United Kingdom).…”

“…See for example: Estrella and Mishkin (1997); Estrella (2007); Estrella et al (2003); Dovern and Zieglar (2008); and Fornani and Lenke (2010). 5 The derivation of the unemployment gap variable is described in detail in Rusticelli et al (2015). Its use is more problematic than other explanatory variables, both because it is not official data and because it is subject to revision.…”

The OECD potential output estimation methodology

“…5 With rare exceptions, the labour income share in the United States has remained between 65% and 70% since 1960 ( Figure 1, Panel A). 6 In other countries, such as Canada, the labour income share appears to have declined since the 1960s, a trend which has generated a rich literature (see for example Schwellnus et al (2018[8]), Pak and Schwellnus (2019 [9]), Karabarbounis and Neiman (2013 [10]), Growiec, McAdam and Mućk (2018 [11]), Schneider (2011 [12]), Krämer (2010 [13]) or Bentolila and Saint-Paul (2003[14])). For the purposes of potential output estimation, the value of α does not have a large impact on either the level or growth rate of potential output, although it impacts the breakdown of potential growth between different components.…”

“…) [10] where the , are the impulse-response coefficients derived in [9]. Finally, this cyclically adjusted labour efficiency series is HP-filtered to obtain the final trend labour efficiency estimate ( ).…”

“…This would allow additional channels through which technology, demographics and policies could affect future output. Pak and Schwellnus (2019 [9]) for instance identified a number of policy influences on the evolution of labour income shares which could be interesting to exploit in the context of long-run scenarios.…”