Time-Varying Nairu and Real Interest Rates in the Euro Area

This paper analyses the Nairu in the euro area and the influence that monetary policy had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early 1970s. The Kalman-filter technique is applied here for the first time using explicit exogenous variables. In particular, real interest rates were found to explain a quarter of the increase in the Nairu between 1980 and 1995. This indicates the possibility of a long-run nonsuperne utrality of monetary policy.