Macroeconomic Unstables and the Rate of Natural Unemployement: The Study of OECD and Turkish Economy 1980-2016

Devran Sanli

Bulletin of Economic Theory and Analysis, 2018, vol. 3, issue 3, 159-174

Abstract: There are two important views in the economics literature that explain the long-term trends of unemployment. The first one is known as "natural rate hypothesis” and the other one is known as "Hysteresis Hypothesis". According to natural rate hypothesis, long-term unemployment will reach its natural rate, and the trade-off between inflation and unemployment will end up on this rate. In the short term, that trade-off relationship will be valid. The hysteresis hypothesis approach claims that shocks have lasting effects on the level of unemployment due to rigidities in the labor market. The unemployement rate will go up to a very high level above the old level after an aconomic shock. According to this opinion, being of long term unemployement will prevent the natural rate of unemployment from returning to its former level. In this study, is aimed to calculate natural rate of unemployment econometric based on the linear relationship between inflation rates corresponding to the unemployment rate for OECD and Turkey between 1980-2016. The finding coefficients are significant statistically and have signs compatible with the theory of economics. In this period natural rate of unemployment for Turkey's economy was calculated 9.14%. For the OECD countries, the unemployment rate increased by 1 percentage point and the inflation rate decreased by 0.9 percentage points on average for the mentioned period. The natural rate of unemployment was calculated as 6.12% for OECD countries. These results are also showing Philips Curve coefficients as tradeoff between inflation and unemployment for Turkey and OECD.

Keywords: Natural Rate of Unemployement; Inflation Rate; Philips Curve; Hysteresis Hypothesis; Macroeconomic Unstables (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Date: 2018
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