Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323970 
Year of Publication: 
2025
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
This study addresses the challenge of estimating the NAIRU in developing countries, focusing on Pakistan from 1972 to 2022. Due to data constraints in such contexts, it introduces robust methodologies, including Hodrick-Prescott and Kalman filters within a univariate framework, to derive NAIRU estimates and their precision. The NAIRU estimates average around five percent, fluctuating over time, indicating a time-varying NAIRU in Pakistan. An analysis of unemployment decomposition reveals that cyclical and non-structural factors are more influential than structural ones in the labor market, emphasizing the need for counter-cyclical policies alongside necessary structural reforms. The unemployment gap and inflation analysis provide mixed evidence on NAIRU's theoretical foundation, recommending simultaneous supply shocks' control and demand management in inflation-targeting. The study indicates Kalman filter estimates the NAIRU more effectively than the HP filter, though both lack precision. Therefore, future research in developing countries with limited data should focus on developing structural approaches suitable for lower degrees of freedom alongside univariate methods.
Subjects: 
NAIRU
NAIRU’s Precision
Univariate Approach
Kalman Filter
State Space Model
HP Filter
JEL: 
C13
C14
E24
E27
Document Type: 
Preprint

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