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The natural rate of unemployment in Estonia: empirical determinants and a new semi-structural model

Author

Listed:
  • Dmitry Kulikov
  • Nicolas Reigl

Abstract

This paper addresses the empirical modelling of the natural rate of unemployment in Estonia. It has two interlinked parts. The first part considers potential empirical determinants of the natural rate of unemployment in a sample of 31 OECD countries, and the second incorporates many of those determinants into a new quarterly semi-structural model of the natural rate of unemployment for Estonia, which we estimate over the period 1998–2019. Our methodological approach to building this new semi-structural model is to explore a space of 4 212 alternative model specifications, each one featuring a distinct combination of extrinsic determinants of the natural rate, and measures of the rate of unemployment and the state of the labour market in Estonia. We find that although some of these potential determinants enter our model in a statistically significant way, the overall time dynamics of the estimated natural rate of unemployment for Estonia are not much affected by these factors, and our estimates of the natural rate are quite similar across all of these determinants over the full sample period. However, we also find that our estimates of the natural rate of unemployment are quite sensitive to the choice of measures of the state of the labour market and the rate of unemployment used in estimating the new model

Suggested Citation

  • Dmitry Kulikov & Nicolas Reigl, 2024. "The natural rate of unemployment in Estonia: empirical determinants and a new semi-structural model," Bank of Estonia Working Papers wp2023-6, Bank of Estonia, revised 23 Feb 2024.
    • Handle: RePEc:eea:boewps:wp2023-6
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//DOI:10.23656/25045520/062023/0205
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    More about this item

    Keywords

    natural rate of unemployment; unemployment gap; NAIRU; panel data; semistructural modelling; model averaging;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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