NEW WORKING PAPERS FROM NORGES BANK.

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Norges Bank's Working Papers (Arbeidsnotater) present research projects (not necessarily in their final version), and are published among other reasons to enable the author to benefit from the comments of colleagues and interested parties. Only Working Papers published in English are listed below. Subscriptions are available free of charge and individual copies may be obtained from the Information Department of Norges Bank. Postal address: PO Box 1179 Sentrum, N-0107 Oslo, Norway.

Steinar Holden and Ragnar Nymoen: "Measuring structural unemployment: Is there a rough and ready answer?" Arbeidsnotat 1998/9. 36 pp. ISSN 0801-2504. ISBN 82-7553-132-2.

In recent years, the OECD has measured the structural rate of unemployment by an indicator called the Non-Accelerating Wage Rate of Unemployment. The NAWRU indicator is an important element in the policy analysis of the OECD. The rise in the estimated NAWRUs is also taken as evidence that Nordic unemployment, as well as unemployment in the rest of Europe, has increased due to a malfunctioning of labour markets. The paper presents stable empirical wage equations for Denmark, Finland, Norway and Sweden over the period 1964-1994, in sharp contrast to the increased NAWRU estimates. The instability of the NAWRU estimates is the product of a misspecified underlying wage equation, and not due to instability in the wage setting itself.

Oistein Roisland and Ragnar Torvik: >. Arbeidsnotat 1999/1.32 pp. ISSN 0801-2504. ISBN 82-7553-135-7.

This paper develops a basic theory for output fluctuations in traded and non-traded sectors under two alternative monetary policy regimes; exchange rate targeting and inflation targeting. The conventional wisdom from one-sector models says that inflation targeting gives better output stabilisation than exchange rate targeting when demand shocks occur, but the opposite when supply shocks occur. In a model with a traded and a non-traded sector, we show that the conventional wisdom holds for the non-traded sector. However, for the traded sector, inflation targeting destabilises output compared with exchange rate targeting when both supply and demand shocks occur. The only shocks where inflation targeting provides better output stability for the traded sector are shocks to world market prices. The two-sector structure introduces new mechanisms that may turn around earlier results for aggregate production. For instance, a demand shock may induce higher aggregate output...

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