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Assessment of the natural rate of unemployment and capacity utilisation in Latvia

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  • Aleksejs Meļihovs

    ()
    (Monetary Policy Department, Bank of Latvia)

  • Anna Zasova

    ()
    (Monetary Policy Department, Bank of Latvia)

Abstract

Inflation and its dynamics feature among the most important indicators in the focus of such economic agents as producers, consumers, investors, monetary and fiscal policy makers. Risks of high inflation or deflation enhance the need to profoundly investigate factors and causes of unfavourable inflation dynamics. Optimal capacity utilisation is one of the ways to escape endogenous pressures that increase inflation or cause deflation. This study pursues the aim of assessing short-term relationships between the capacity utilisation rate and inflation in Latvia. The authors have set a target to determine the capacity utilisation rate at which no pressure is exerted upon inflation and to show whether the capacity utilisation rate of the Latvian economy was an underlying factor that caused a rise in inflation after EU accession.

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Bibliographic Info

Article provided by Baltic International Centre for Economic Policy Studies in its journal Baltic Journal of Economics.

Volume (Year): 9 (2009)
Issue (Month): 2 (December)
Pages: 25-46

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Handle: RePEc:bic:journl:v:9:y:2009:i:2:p:25-46

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Keywords: NAIRU; NAIRCU; Kalman filter;

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References

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  1. Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
  2. Laurence Ball & N Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Economics Working Paper Archive 475, The Johns Hopkins University,Department of Economics.
  3. Martins Bitans & Dace Slakota & Ivars Tillers, 2001. "Price Dynamics in Latvia - Experience and Future Prospects," Working Papers 2001/01, Latvijas Banka.
  4. Niek Nahuis, 2003. "An alternative demand indicator: the 'non-accelerating inflation rate of capacity utilization'," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1339-1344.
  5. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
  6. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  7. Camille Logeay & Silke Tober, 2003. "Time-varying Nairu and Real Interest Rates in the Euro Area," Discussion Papers of DIW Berlin 351, DIW Berlin, German Institute for Economic Research.
  8. Masso, Jaan & Staehr, Karsten, 2005. "Inflation dynamics and nominal adjustment in the Baltic States," Research in International Business and Finance, Elsevier, vol. 19(2), pages 281-303, June.
  9. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  10. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  11. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  12. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 0441, European Central Bank.
  13. Aleksejs Melihovs & Anna Zasova, 2007. "Estimation of the Phillips Curve for Latvia," Working Papers 2007/03, Latvijas Banka.
  14. Jørgen Elmeskov, 1993. "High and Persistent Unemployment: Assessment of the Problem and Its Causes," OECD Economics Department Working Papers 132, OECD Publishing.
  15. Laurence Boone & Claude Giorno & Mara Meacci & Dave Rae & Pete Richardson & Dave Turner, 2001. "Estimating the structural rate of unemployment for the OECD countries," OECD Economic Studies, OECD Publishing, vol. 2001(2), pages 171-216.
  16. Nienke Oomes & Oksana Dynnikova, 2006. "The Utilization-Adjusted Output Gap," IMF Working Papers 06/68, International Monetary Fund.
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Cited by:
  1. Farzana Shaheen & Azad Haider & Sajid Amin Javed, 2011. "Estimating Pakistan’s Time Varying Non-Accelerating Inflation Rate of Unemployment: An Unobserved Component Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 172-179.
  2. Agnese Bicevska & Aleksejs Melihovs & Krista Kalnberzina, 2009. "Savings in Latvia," Discussion Papers 2009/01, Latvijas Banka.

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