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The Time-Varying NAIRU and Potential Output in Finland

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  • Rasi, Chris-Marie

    ()
    (Bank of Finland)

  • Viikari, Jan-Markus
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    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.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/DP_06_1998.pdf
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    Bibliographic 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

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: NAIRU; potential output; Phillips curve; structural time series models; unobserved components method;

    References

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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis in Unemployment," NBER Working Papers 2035, National Bureau of Economic Research, Inc.
    2. Jørgen Elmeskov, 1993. "High and Persistent Unemployment: Assessment of the Problem and Its Causes," OECD Economics Department Working Papers 132, OECD Publishing.
    3. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
    4. Robert F. Engle, 1978. "Estimating Structural Models of Seasonality," NBER Chapters, in: Seasonal Analysis of Economic Time Series, pages 281-308 National Bureau of Economic Research, Inc.
    5. 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.
    6. 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.
    7. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
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    Citations

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    Cited by:
    1. Chiarini, Bruno & Piselli, Paolo, 2001. "Identification and dimension of the NAIRU," Economic Modelling, Elsevier, vol. 18(4), pages 585-611, December.
    2. Andreas Billmeier, 2004. "Measuring a Roller Coaster," IMF Working Papers 04/57, International Monetary Fund.
    3. W. Bolt & P.J.A. van Els, 1998. "Output gap and inflation in the EU," WO Research Memoranda (discontinued) 550, Netherlands Central Bank, Research Department.
    4. Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, 2003. "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers 179, Bank of England.
    5. Zsolt Darvas & Gábor Vadas, 2003. "Univariate Potential Output Estimations for Hungary," MNB Working Papers 2003/8, Magyar Nemzeti Bank (the central bank of Hungary).
    6. Fregert, Klas & Pehkonen, Jaakko, 2008. "Causes of structural unemployment in Finland and Sweden 1990-2004," Working Papers 2008:14, Lund University, Department of Economics.
    7. Fabiani, Silvia & Mestre, Ricardo, 2000. "Alternative measures of the NAIRU in the euro area: estimates and assessment," Working Paper Series 0017, European Central Bank.

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