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The Time-Varying NAIRU and Potential Output in Finland

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Author Info
Rasi, Chris-Marie () (Bank of Finland)
Viikari, Jan-Markus
Abstract

This study presents statistical estimates of Non-Accelerating Inflation Rate of Unemployment, or NAIRU, and potential output in Finland. The estimates are obtained by applying the structural time series/unobserved components method to quarterly data on inflation, rate of unemployment, aggregate production and a number of auxiliary variables covering the period 1982:1 - 1996:4. According to the basic idea underlying these methods, noisy estimates of the unobserved NAIRU and potential output can be obtained from the so-called measurement equations, which in the present study are provided by the now standard specifications of the Okun's law and Phillips curve. To pin down the dynamics of the unobserved components the study assumes that they are driven by stochastic trends. One of the main features of the method applied in the study is the system estimation of the NAIRU and potential output time seria along with other parameters. According to the results NAIRU and potential output variate in the long run less than the actual unemployment rate and output. Until the latter part of 1991 NAIRU has been above the unemployment rate. After this the NAIRU has remained clearly below the unemployment rate although it has risen trendwise to a level between 8 and 9.5 per cent in the 1990's.

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File URL: http://www.bof.fi/NR/rdonlyres/620AD42C-5A17-4B2E-9948-79074EF2EEA2/0/DP_06_1998.pdf
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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 6/1998.

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Length: 30 pages
Date of creation: 15 Apr 1998
Date of revision:
Handle: RePEc:hhs:bofrdp:1998_006

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: NAIRU; potential output; Phillips curve; structural time series models; unobserved components method;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  2. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388. [Downloadable!] (restricted)
  3. Harvey, A C & Todd, P H J, 1983. "Forecasting Economic Time Series with Structural and Box-Jenkins Models: A Case Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(4), pages 299-307, October.
  4. Jørgen Elmeskov, 1993. "High and Persistent Unemployment: Assessment of the Problem and Its Causes," OECD Economics Department Working Papers 132, OECD, Economics Department. [Downloadable!]
  5. Olivier J. Blanchard, 1986. "Hysteresis and Unemployment," Working papers 430, Massachusetts Institute of Technology (MIT), Department of Economics.
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  6. Robert J. Gordon, 1997. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Billmeier, 2004. "Measuring a Roller Coaster: Evidence on the Finnish Output Gap," IMF Working Papers 04/57, International Monetary Fund. [Downloadable!]
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  2. Gabor Vadas & Zsolt Darvas, 2005. "Univariate Potential Output Estimations for Hungary," Macroeconomics 0512009, EconWPA. [Downloadable!]
    Other versions:
  3. Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, . "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers 179, Bank of England. [Downloadable!]
  4. Fregert, Klas & Pehkonen, Jaakko, 2008. "Causes of structural unemployment in Finland and Sweden 1990-2004," Working Papers 2008:14, Lund University, Department of Economics. [Downloadable!]
  5. Ricardo Mestre & Silvia Fabiani, 2000. "Alternative measures of the NAIRU in the Euro area: estimates and assessment," Working Paper Series 17, European Central Bank. [Downloadable!]
  6. W. Bolt & P.J.A. van Els, 2000. "Output Gap and Inflation in the EU," DNB Staff Reports (discontinued) 44, Netherlands Central Bank. [Downloadable!]
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