Title: The trend unemployment rate in Canada
Authors: Marie-Noelle Robitaille - Bank of Canada (Canada)
Laurence Savoie-Chabot - Bank of Canada (Canada)
Dany Brouillette - Bank of Canada (Canada)
Pierre St-Amant - Bank of Canada (Canada) [presenting]
Abstract: The unemployment rate is an important variable for monetary policy. A low (high) unemployment rate suggests that conditions in the labour market are tight (easy), which tends to generate upward (downward) pressures on wages and consumer prices index inflation. But the unemployment rate is only high or low when compared with some reference value. The authors call this value the trend unemployment rate (TUR). Their objective is to determine if a TUR useful for the conduct of Canadian monetary policy can be identified. Various approaches have been proposed to measure the TUR. A frequently chosen approach uses the information provided by inflation within a reduced form Phillips curve. A different approach is to develop models with variables (e.g. payroll taxes and unionization rate) thought to determine the TUR. We consider methods following these two approaches. They assess them based on three criteria. A first criterion is that TUR estimation methods should provide explanations for changes in trend unemployment. A second criterion is that revisions to TUR estimates need to be well-behaved. A third criterion is that a UGAP should help forecast inflation. They use real-time data for our assessment of conformity with the second and third criteria.