To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.11.002 Byline: Thomas B. King (a), James Morley (b) Keywords: Structural vector autoregression; Natural rate of unemployment; Search theory; Sectoral shifts; Phillips curve Abstract: The natural rate of unemployment can be measured as the time-varying steady state of a structural vector autoregression. For post-War US data, the natural rate implied by this approach is more volatile than most previous estimates, with its movements accounting for the bulk of the variation in the unemployment rate, as well as substantial portions of the variation in aggregate output and inflation. These movements, in turn, can be related to variables associated with labor-market search theory, including unemployment benefits, labor productivity, real wages, and sectoral shifts in the labor market. There is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment, supporting the existence of a short-run Phillips curve. Author Affiliation: (a) Division of Monetary Affairs, Federal Reserve Board of Governors, USA (b) Department of Economics, Washington University in St. Louis, USA Article History: Received 12 August 2005; Revised 21 October 2005; Accepted 12 November 2005 Article Note: (footnote) [star] We thank Barbara Craig, Steve Fazzari, Robert King, Ken Matheny, Jim Nason, Jeremy Piger, Tara Sinclair, Jack Tatom, Mark Vaughan, and an anonymous referee for helpful comments. We also thank participants at the Eastern Economics Association, Midwest Economics Association, Missouri Valley Economics Association, and the Society of Computational Economics meetings. Responsibility for any errors is our own. Morley acknowledges support from the Weidenbaum Center on the Economy, Government, and Public Policy, but the views expressed in this paper should not be interpreted as those of the Weidenbaum Center.