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A Structural Vector Autoregressive (SVAR) model for the Hungarian labour market

Author

Listed:
  • Zoltán M. Jakab

    () (Office of Fiscal Council, Republic of Hungary)

  • Éva Kaponya

    () (Magyar Nemzeti Bank)

Abstract

This paper presents a Structural Vector Autoregressive (SVAR) model with particular attention to the Hungarian labour market. The identification of structural shocks is based on sign restrictions. We identify four structural shocks: a labour supply, an aggregate supply, an aggregate demand and a monetary policy shock. It is worth emphasising that a negative labour supply shock cannot be distinguished from minimum wage hikes in this model. Impulse response analysis shows that after an aggregate supply shock, real wages react more persistently and to a greater extent than prices. In addition, aggregate supply and monetary policy shocks induce relatively strong reactions on the real side of the economy. Unlike in estimated DSGE models for Hungary, we found a positive response of employment with respect to monetary policy shock. All impulse responses are estimated to be less persistent than in the SVAR model estimated using eurozone data pointing to a more flexible Hungarian economy. Our impulse responses are closer to the DSGE model of Jakab and Világi (2008) and Baksa, Benk and Jakab (2009) than to the model of Jakab and Kónya (2009) which describes a relatively rigid labour market. Historical decomposition exercises revealed the presence of positive labour supply shocks between 2003 and 2006. The other important factor in explaining employment was aggregate supply shock. Neither monetary nor aggregate demand shocks contributed significantly to employment fluctuations.

Suggested Citation

  • Zoltán M. Jakab & Éva Kaponya, 2010. "A Structural Vector Autoregressive (SVAR) model for the Hungarian labour market," MNB Working Papers 2010/11, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:wpaper:2010/11
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    Cited by:

    1. Gábor Pellényi, 2012. "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis," MNB Working Papers 2012/1, Magyar Nemzeti Bank (Central Bank of Hungary).

    More about this item

    Keywords

    Bayesian; VAR; employment; inflation; wage; labour economics;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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