Question 2. An Estimate of the Natural Rate of Unemployment [2 marks] Using the natural rate...

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Question 2. An Estimate of the Natural Rate of Unemployment [2 marks] Using the natural rate of unemployment, the Phillips curve equation can be rewritten as: I t -ß (ut - u*) + g (aggregate-supply factors), (1) where ß is assumed to be positive, and the minus sign implies that the relationship is inverse. πt = (a) What data are required to estimate equation (1)? Discuss. [1.0 mark] (b) Let us assume that we obtain the following estimation of the equation of the regression line (1): îtî= 1.4 -0.22ut +errort Could you use this equation to estimate the natural rate of unemployment? Explain. [1.0 mark] Question 2. An Estimate of the Natural Rate of Unemployment [2 marks] Using the natural rate of unemployment, the Phillips curve equation can be rewritten as: I t -ß (ut - u*) + g (aggregate-supply factors), (1) where ß is assumed to be positive, and the minus sign implies that the relationship is inverse. πt = (a) What data are required to estimate equation (1)? Discuss. [1.0 mark] (b) Let us assume that we obtain the following estimation of the equation of the regression line (1): îtî= 1.4 -0.22ut +errort Could you use this equation to estimate the natural rate of unemployment? Explain. [1.0 mark]

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Estimating the Natural Rate of Unemployment NRU a Data Required for Estimating Equation 1 To estimate equation 1 we need the following data Inflation ... View the full answer