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System Estimates of Cyclical Unemployment and Cyclical Output in the 15 European Union Member-States, 1961-1999

  • Katos, A.
  • Pallis, D.
  • Katsouli, E.
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    The purpose of this paper was to estimate cyclical unemployment and cyclical output in the 15 European Union member-states using a system of Phillips curve and Okun’s law equations. Treating both the NAIRU and the potential output growth rate as time varying unobserved stochastic processes, a state-space maximum likelihood estimation method - using Kalman filter where the state variables were random walks - was followed in order to estimate the 15 systems of equations. Overall, the estimated with the new approach systems of conditional equations suggested that the extent and direction of changes of cyclical unemployment and cyclical output over the period 1961-1999 is mixed across the 15 EU member states. The paper concludes that the application of “common” policies across the 15 EU member states may be questionable because of the different expected effects of these policies on the various economies.

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    Article provided by Euro-American Association of Economic Development in its journal International Journal of Applied Econometrics and Quantitative Studies .

    Volume (Year): 1 (2004)
    Issue (Month): 4 ()
    Pages: 5-26

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    Handle: RePEc:eaa:ijaeqs:v:1:y2004:i:1_19
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    1. Dickey, David A & Pantula, Sastry G, 1987. "Determining the Ordering of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 455-61, October.
    2. Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February.
    3. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
    4. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    5. Jaeger, Albert & Parkinson, Martin, 1994. "Some evidence on hysteresis in unemployment rates," European Economic Review, Elsevier, vol. 38(2), pages 329-342, February.
    6. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
    7. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
    8. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-55, December.
    9. Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
    10. Stuart E. Weiner, 1993. "New estimates of the natural rate of unemployment," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 53-69.
    11. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
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