Potential Output, the Natural Rate of Unemployment, and the Phillips Curve in a Multivariate Structural Time Series Framework
AbstractWe propose a bivariate structural time series framework to decompose GDP and the unemployment rate into their trend, cyclical, and irregular components. We implement Okun's law by a generalised version of the common cycles restriction allowing for a phase shift between the two cycles and add a price-wage block to the system. We estimate by maximum likelihood Phillips curve-type equations, where the particular cycles enter the wage and price equations in levels though the trends are modelled as non-stationary stochastic processes. The extended models provide an improved estimate of the current cyclical position, compared to univariate estimates and the HP filter.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 33.
Length: 16 pages
Date of creation: Jun 1996
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Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
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