Comparing NAIRU and Economic Cycle from the Perspective of Labour Market in the Countries of the Visegrad Group

This paper is aimed to map the development of the NAIRU and the business cycle in the labour market in selected transition economies. The article is focused on methods able to capture the fragile environment in the labour market and in the economy. Sources of instability, changes in development of NAIRU and estimation of changes in the labour market in the near future are the main issues discussed in this paper. The results of our analysis show that in case of economies in transition the labour market is best described by NAIRU estimated by Kalman filter and HP filter. Kalman filter succeeded in capturing the non stable environment in the labour market. Sources of instability and eventual changes in labour market can be for example the restructuring of the economy, change in nature of trade off between unemployment rate and households´ consumption deflator caused by factors exogenous to the labour market or by the global financial and economic crisis. Findings about non stable environment in past (in the Czech Republic for example years 1999-2000) can be used, under condition of anticipated expectations environment, to the support of hypothesis that the non stable environment is present in the labour market at the end of the examined period (1-3Q 2008). Kalman filter can be used also for testing of time leading between labour market development in various countries and consequently for short term prediction making. HP filter results support, according to our analysis, the hypothesis resulting from Kalman filter. Gradual reduction in unemployment gap derived by HP filter indicated a forthcoming change in business cycle phases. In one case the HP filter succeeded in predicting the business cycle phases change even sooner than the Kalman filter did.