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The Time-Varying NAIRU and Potential Output in Finland

  • Rasi, Chris-Marie

    ()

    (Bank of Finland)

  • Viikari, Jan-Markus
Registered author(s):

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