On Econometrics with a Human Face and Business Cycles: A Reply to Fioramanti and Waldmann’s Criticism on the EU’s NAWRU Methodology

European Economy Economic Briefs are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs to inform discussion on economic policy and to stimulate debate.

This economic brief refutes the criticism put forward by M. Fioramanti and R. Waldmann and, in turn, argues that their implicitly suggested approach for estimating the unemployment gap leads to results which, firstly, are problematic on purely economic grounds and, secondly, have dubious statistical properties.

• Primary Source

European Commission: DG for Economic and Financial Affairs: The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp535_en.pdf

European Commission: DG for Economic and Financial Affairs: On Econometrics with a Human Face and Business Cycles https://ec.europa.eu/info/publications/economy-finance/econometrics-human-face-and-business-cycles-reply-fioramanti-and-waldmanns-criticism-eus-nawru-methodology_en

VOX, 19.11.16: The Stability and Growth Pact: Econometrics and its consequences for human beings http://voxeu.org/article/econometrics-and-its-consequences-human-beings

---