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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page 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

Full paper (99 KB PDF)

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Last update: January 6, 2001