A simple estimation of the NAIRU in the Japanese economy: 1953-85

This paper focuses on an estimation of the NARU in the Japanese economy between 1953 and 1985. The estimation of the NARU consists of two stages. The first regression is to obtain a wage equation which has demand and supply conditions in the labour market, and inflationary expectations as the two main explanatory variables. At the second stage an unemployment equation is specified. The unemployment equation is constructed so as to have the calculated ratio so the ex ante labour demand to supply from the estimated wage equation, and additional variables capturing structural changes in the labour market. The NAIRU is computed in the unemployment equation by setting the ratio of labour demand to supply to unity. The estimated NAIRU keeps decreasing between 1953 and 1966 with the exception of 1959, while it continues to rise during 1967 and 1985.