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Estimating Time-Varying Potential Output and NAIRU Using a Multivariate Filter for Turkey

Author

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  • Mert Gökcü

Abstract

Potential output and NAIRU estimates are crucial to identify the state of the economy for both monetary policymakers and fiscal policy authorities. This paper extends the multivariate filter approach developed for Turkey by integrating the capacity utilization block into the model. Also, broader-defined unemployment rate is included as alternative in the model. The idea is that traditional measure of unemployment rate may not fully capture the cycle conditions of the labor market. The results show that long and deep recessions resulted in hysteresis in the labor market and reduced potential output. While estimate of the slack in the output was smaller in the recent shock (2018-3: 2018-4), the unemployment rate and NAIRU increased sharply with reaching the highest levels historically in recession periods. Due to weak foreign demand and composition of industrial sector products, the slack in capacity utilization rate was higher in the global financial crisis (2008-2: 2009-1).

Suggested Citation

  • Mert Gökcü, 2021. "Estimating Time-Varying Potential Output and NAIRU Using a Multivariate Filter for Turkey," Working Papers 2139, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2139
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2021/21-39
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    More about this item

    Keywords

    Potential output; Output gap; NAIRU; Multivariate filter; Bayesian estimation;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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