The Investigation and Analysis of NAIRU in the Iranian Economy

Reduction of unemployment rate and attaining the non-accelerating inflation rate are de facto postulated as key macroeconomic targets for policymakers. Hence, measuring and analyzing the Non-Accelerating Inflation Rate of Unemployment (NAIRU) are de jure important issue in the economy. In this paper, an attempt is made to estimate the phenomenon of NAIRU in the Iranian economy, viz-a-viz applying the State-Space Model for the study period of 2004-2016 per se. In this context, we have estimated initially the adjusted unemployment rate with the assumption of stable labor force participation rate and subsequently based upon this rate, we have tried to estimate the NAIRU, observing the structure of labor force and procyclicality of the labor force participation rate, Ipso facto. The results prima facie indicate that changes in the unemployment rate have been grossly near to NAIRU, and as a result, the acceleration of inflation rate has ensued at its lowest level. Thus we have propounded that, in order to reduce the unemployment rate, the miscellaneous of policies of supply side economy in the framework of augmenting the manufacturing capacities and fostering the labor productivity would be adopted as main macroeconomic policies, in toto. We may conclude an axiomatic fact that, diminishing the unemployment rate, without enhancing the productive output capacity of the economy can lead to incidence of inflationary pressures due to dearth of significant gap between rate of unemployment and NAIRU, quid pro qua.