Macroeconomics 5th Edition by Olivier Blanchard

Exercise 8

Estimating the natural rate of unemployment
To answer this question, you will need data on the annual U.S. unemployment and inflation rates since 1970, which can be obtained from the Web site of the Bureau of Labor Statistics (www.bls.gov).
Retrieve the data for the civilian unemployment rate. This is a monthly series, so use the year's average for a given year's unemployment rate. In addition, retrieve the data for the consumer price index (CPI), all urban consumers. Again, you can use the average monthly CPI for each year. The BLS provides this number as its annual CPI.
a. Define the inflation rate In year t as the percentage change in the CPI between year t - 1 and year t. Compute the inflation rate for each year and the change in the inflation rate from one year to the next b. Plot the data for all the years since 1970 on a diagram, with the change in inflation on the vertical axis and the rate of unemployment on the horizontal axis. Is your graph similar to Figure 8-5
c. Using a ruler, draw the line that appears to fit best the points in the figure. Approximately what is the slope of the line What is the intercept Write down the corresponding equation.
d. According to your analysis in (b), what has been the natural rate of unemployment since 1970