Orphanides, Athanasios (contributor); … - 2005
∗t)+epi,t, (1)
ut = 0.257uet+1 +1.170ut−1 −0.459ut−2 −0.032u∗t +0.043(rat−1 −r∗t)+eu,t, (2)
with innovation standard errors equal to … natural rates follow:
u∗t = 0.01¯u∗ +0.99 u∗t−1 +eu∗,t,
r∗t = 0.01¯r∗ +0.99 r∗t−1 +er∗,t.
As discussed in Orphanides and …