David M. Kemme, Ph.D., Fogelman College of Business, University of Memphis, 3675 Central Avenue, TN, Memphis, TN 38152 and Saida Agambayeva, Ph.D., Department of Research and Statistics, National Bank of Kazakhstan, 21, Almaty, 050040, Kazakhstan.
Monetary policy in transition economies is particularly challenging due to rapid structural change, underdeveloped banking systems, ill-defined monetary policy channels, few policy instruments and limited data. Nonetheless policy makers must make significant policy adjustments to manage growth and inflation. The non-accelerating inflation rate of unemployment is sometimes an indicator of economic performance useful for policy makers in market economies. Monetary policy makers at the National Bank of Kazakhstan are in need of meaningful empirical indicators of economic conditions as they formulate monetary policy. We estimate NAIRU, following Ball and Mankiw (2002). Preliminary estimates indicate NAIRU is high, perhaps due to under developed labor markets and high costs associated with regional labor movement, but it has been falling substantially. We believe that NAIRU as a measure of the tightness of labor and goods markets, despite caveats regarding data availability and market development, is still a meaningful indicator for monetary policy makers to employ.
Ball, Lawrence and N. Gregory Mankiw (2002) “The NAIRU in Theory and Practice,” Journal of Economic Perspectives 16,4:115-136.