IDEAS home Printed from https://ideas.repec.org/p/euf/dispap/069.html
   My bibliography  Save this paper

NAWRU Estimation Using Structural Labour Market Indicators

Author

Listed:
  • Atanas Hristov
  • Christophe Planas
  • Werner Roeger
  • Alessandro Rossi

Abstract

The use of unobserved component models to estimate the NAWRU has been strongly criticized due to some excessive pro-cyclicality at the sample end, especially in the neighbourhood of turning points. To address this criticism, the European Commission now uses a model-based approach where the information set is augmented with a structural indicator of the labour market to which the NAWRU is supposed to converge in a certain number of years. The resulting NAWRU estimates mixes information about the business cycle and the labour market characteristics. The application to the EU Member States shows that besides moderating pro-cyclicality, this approach also reduces the first revision to the one- and two-year-ahead forecasts of the NAWRU in four-fifth of the countries considered.

Suggested Citation

  • Atanas Hristov & Christophe Planas & Werner Roeger & Alessandro Rossi, 2017. "NAWRU Estimation Using Structural Labour Market Indicators," European Economy - Discussion Papers 069, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:069
    as

    Download full text from publisher

    File URL: https://economy-finance.ec.europa.eu/publications/nawru-estimation-using-structural-labour-market-indicators_en
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nelson, Edward & Nikolov, Kalin, 2003. "UK inflation in the 1970s and 1980s: the role of output gap mismeasurement," Journal of Economics and Business, Elsevier, vol. 55(4), pages 353-370.
    2. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    3. Julia Lendvai & Matteo Salto & Anna Thum-Thysen, 2015. "Structural unemployment vs. NAWRU: implications for the assessment of the cyclical position and the fiscal stance," European Economy - Economic Papers 2008 - 2015 552, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Karel Havik & Kieran Mc Morrow & Fabrice Orlandi & Christophe Planas & Rafal Raciborski & Werner Roeger & Alessandro Rossi & Anna Thum-Thysen & Valerie Vandermeulen, 2014. "The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps," European Economy - Economic Papers 2008 - 2015 535, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    6. Andrea Bassanini & Romain Duval, 2006. "The Determinants of Unemployment across OECD Countries," Post-Print halshs-00120584, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2023. "Österreichs Wirtschaft wächst mittelfristig nur verhalten. Mittelfristige Prognose 2024 bis 2028," WIFO Monatsberichte (monthly reports), WIFO, vol. 96(10), pages 667-683, October.
    2. Duarte, Cláudia & Maria, José R. & Sazedj, Sharmin, 2020. "Trends and cycles under changing economic conditions," Economic Modelling, Elsevier, vol. 92(C), pages 126-146.
    3. Orlov, D. & Postnikov, E., 2022. "Phillips curve: Inflation and NAIRU in the Russian regions," Journal of the New Economic Association, New Economic Association, vol. 55(3), pages 61-80.
    4. Boysen-Hogrefe, Jens & Hoffmann, Timo, 2023. "Vorschläge zur Modifikation der Potenzialschätzung der Bundesregierung im Vergleich," Kieler Beiträge zur Wirtschaftspolitik 45, Kiel Institute for the World Economy (IfW Kiel).
    5. Breuer Sebastian & Elstner Steffen, 2020. "Germany’s Growth Prospects against the Backdrop of Demographic Change," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(5), pages 565-605, October.
    6. Josef Baumgartner & Serguei Kaniovski & Simon Loretz, 2023. "Rückgang der Energiepreise verbessert die Wachstumsaussichten. Update der mittelfristigen Prognose 2023 bis 2027," WIFO Monatsberichte (monthly reports), WIFO, vol. 96(4), pages 235-248, April.
    7. Josef Baumgartner & Serguei Kaniovski & Christian Glocker & Walter Hyll & Hans Pitlik, 2020. "COVID-19-Pandemie dämpft die Konjunkturaussichten. Mittelfristige Prognose 2021 bis 2025," WIFO Monatsberichte (monthly reports), WIFO, vol. 93(10), pages 731-753, October.
    8. Josef Baumgartner & Serguei Kaniovski & Marian Fink & Hans Pitlik & Silvia Rocha-Akis, 2021. "Strong Private Consumption Spurs Economic Growth. Medium-term Forecast of the Austrian Economy 2022 to 2026 Including the Tax Reform 2022 2024," WIFO Reports on Austria, WIFO, issue 13, November.
    9. Josef Baumgartner & Serguei Kaniovski & Simon Loretz, 2022. "Energiepreisschock trübt auch mittelfristig die Wirtschaftsaussichten. Mittelfristige Prognose 2023 bis 2027," WIFO Monatsberichte (monthly reports), WIFO, vol. 95(10), pages 643-661, October.
    10. Groll, Dominik, 2017. "Deutliche Anzeichen für Anspannungen am Arbeitsmarkt," Kiel Insight 2017.19, Kiel Institute for the World Economy (IfW Kiel).
    11. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2017. "Für eine zukunftsorientierte Wirtschaftspolitik. Jahresgutachten 2017/18 [Towards a Forward-Looking Economic Policy. Annual Report 2017/18]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201718.
    12. Achim Truger, 2020. "Reforming EU Fiscal Rules: More Leeway, Investment Orientation and Democratic Coordination," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(5), pages 277-281, September.
    13. Simone Auer, 2018. "Labour market conditions and wage inflation in CEE economies," Questioni di Economia e Finanza (Occasional Papers) 460, Bank of Italy, Economic Research and International Relations Area.
    14. Breuer, Sebastian & Elstner, Steffen, 2017. "Die Wachstumsperspektiven der deutschen Wirtschaft vor dem Hintergrund des demografischen Wandels: Die Mittelfristprojektion des Sachverständigenrates," Working Papers 07/2017, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    15. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    16. Ademmer, Martin & Boysen-Hogrefe, Jens & Carstensen, Kai & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Rossian, Thies & Stolzenburg, Ulrich, 2019. "Schätzung von Produktionspotenzial und -lücke: Eine Analyse des EU-Verfahrens und mögliche Verbesserungen," Open Access Publications from Kiel Institute for the World Economy 193965, Kiel Institute for the World Economy (IfW).
    17. Ademmer, Martin & Boysen-Hogrefe, Jens & Carstensen, Kai & Hauber, Philipp & Jannsen, Nils & Kooths, Stefan & Rossian, Thies & Stolzenburg, Ulrich, 2019. "Schätzung von Produktionspotenzial und -lücke: Eine Analyse des EU-Verfahrens und mögliche Verbesserungen," Kieler Beiträge zur Wirtschaftspolitik 19, Kiel Institute for the World Economy (IfW Kiel).
    18. François Blondeau & Christophe Planas & Alessandro Rossi, 2021. "Output Gap Estimation Using the European Union's Commonly Agreed Methodology Vade Mecum & Manual for the EUCAM Software," European Economy - Discussion Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    19. Ademmer, Martin & Boysen-Hogrefe, Jens & Fiedler, Salomon & Groll, Dominik & Jannsen, Nils & Kooths, Stefan & Potjagailo, Galina & Stolzenburg, Ulrich, 2017. "Deutsche Konjunktur im Winter 2017 - Deutsche Wirtschaft in voller Fahrt [German Economy Winter 2017 - German economy at full steam]," Kieler Konjunkturberichte 38, Kiel Institute for the World Economy (IfW Kiel).
    20. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2022. "Ukraine-Krieg trübt die mittelfristigen Wirtschaftsaussichten. Update der mittelfristigen Prognose 2022 bis 2026," WIFO Monatsberichte (monthly reports), WIFO, vol. 95(4), pages 233-245, April.
    21. Josef Baumgartner & Serguei Kaniovski & Marian Fink & Margit Schratzenstaller, 2021. "Steuerreform 2022/2024 – Gesamtwirtschaftliche Wirkungen," WIFO Monatsberichte (monthly reports), WIFO, vol. 94(12), pages 883-898, December.
    22. Josef Baumgartner & Serguei Kaniovski & Marian Fink & Hans Pitlik & Silvia Rocha-Akis, 2021. "Starker privater Konsum treibt das Wirtschaftswachstum. Mittelfristige Prognose 2022 bis 2026 unter Berücksichtigung der Steuerreform 2022/2024," WIFO Monatsberichte (monthly reports), WIFO, vol. 94(10), pages 711-736, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Federico Bassi, 2020. "Chronic Excess Capacity and Unemployment Hysteresis in EU Countries. A Structural Approach," DISCE - Working Papers del Dipartimento di Economia e Finanza def091, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Dovern, Jonas & Zuber, Christopher, 2020. "How economic crises damage potential output – Evidence from the Great Recession," Journal of Macroeconomics, Elsevier, vol. 65(C).
    3. Liotti, Giorgio, 2020. "Labour market flexibility, economic crisis and youth unemployment in Italy," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 150-162.
    4. Jordi Galí, 2015. "Insider-outsider labor markets, hysteresis and monetary policy," Economics Working Papers 1506, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2020.
    5. Aloy Marcel & Dufrénot Gilles & Tong Charles Lai & Peguin-Feissolle Anne, 2013. "A smooth transition long-memory model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 281-296, May.
    6. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h561p0po1 is not listed on IDEAS
    7. repec:spo:wpmain:info:hdl:2441/6120 is not listed on IDEAS
    8. repec:hal:wpspec:info:hdl:2441/2005 is not listed on IDEAS
    9. Philipp Heimberger & Jakob Kapeller, 2017. "The performativity of potential output: pro-cyclicality and path dependency in coordinating European fiscal policies," Review of International Political Economy, Taylor & Francis Journals, vol. 24(5), pages 904-928, September.
    10. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    11. Bozani, Vasiliki & Drydakis, Nick, 2011. "Studying the NAIRU and its Implications," IZA Discussion Papers 6079, Institute of Labor Economics (IZA).
    12. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    13. Bertola, Giuseppe, 2017. "European unemployment revisited: Shocks, institutions, integration," Research in Economics, Elsevier, vol. 71(3), pages 588-612.
    14. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," Working Papers hal-03602950, HAL.
    15. repec:hal:wpspec:info:hdl:2441/6120 is not listed on IDEAS
    16. Brian Micallef, 2017. "Empirical Estimates of Okun¡¯s Law in Malta," Applied Economics and Finance, Redfame publishing, vol. 4(1), pages 138-148, January.
    17. Alfred Stiassny, 1998. "Wage Setting and Hysteresis in Unemployment," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(1), pages 79-107, January.
    18. Ștefan George & Paraschiv Anca & Volintiru Clara, 2022. "Alternative Unemployment Rates in Romania," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 16(1), pages 1491-1504, August.
    19. Jordi Galí, 2015. "Hysteresis and the European Unemployment Problem Revisited," NBER Working Papers 21430, National Bureau of Economic Research, Inc.
    20. repec:hal:spmain:info:hdl:2441/6120 is not listed on IDEAS
    21. Heyer, Eric & Reynes, Frederic & Sterdyniak, Henri, 2007. "Structural and reduced approaches of the equilibrium rate of unemployment, a comparison between France and the United States," Economic Modelling, Elsevier, vol. 24(1), pages 42-65, January.
    22. Predrag Trpeski & Dragan Tevdovski, 2015. "Nairu Estimates In Transitional Economy With Extremely High Unemployment Rate: The Case Of Republic Of Macedonia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(206), pages 167-186, July - Se.
    23. repec:hal:spmain:info:hdl:2441/7349 is not listed on IDEAS
    24. Aurélien Gaimon & Vincent Lapegue & Paola Veroni & Noé N'Semi & Frédéric Reynés & Maël Theulière, 2007. "Does the interaction between shocks and institutions solve the OECD unemployment puzzle ? A theoretical and empirical appraisal," SciencePo Working papers Main hal-03602950, HAL.
    25. Ewing, Bradley T. & Wunnava, Phanindra V., 2001. "Unit roots and structural breaks in North American unemployment rates," The North American Journal of Economics and Finance, Elsevier, vol. 12(3), pages 273-282, November.
    26. Orsola Costantini, 2015. "The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate," Working Papers Series 24, Institute for New Economic Thinking.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J0 - Labor and Demographic Economics - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:dispap:069. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ECFIN INFO (email available below). General contact details of provider: https://edirc.repec.org/data/dg2ecbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.