The natural rate of unemployment in Estonia: empirical determinants and a new semi-structural model

Dmitry Kulikov () and Nicolas Reigl ()

No wp2023-6, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper addresses the empirical modelling of the natural rate of unemployment in Estonia. It has two interlinked parts. The first part considers potential empirical determinants of the natural rate of unemployment in a sample of 31 OECD countries, and the second incorporates many of those determinants into a new quarterly semi-structural model of the natural rate of unemployment for Estonia, which we estimate over the period 1998–2019. Our methodological approach to building this new semi-structural model is to explore a space of 4 212 alternative model specifications, each one featuring a distinct combination of extrinsic determinants of the natural rate, and measures of the rate of unemployment and the state of the labour market in Estonia. We find that although some of these potential determinants enter our model in a statistically significant way, the overall time dynamics of the estimated natural rate of unemployment for Estonia are not much affected by these factors, and our estimates of the natural rate are quite similar across all of these determinants over the full sample period. However, we also find that our estimates of the natural rate of unemployment are quite sensitive to the choice of measures of the state of the labour market and the rate of unemployment used in estimating the new model

Keywords: natural rate of unemployment; unemployment gap; NAIRU; panel data; semistructural modelling; model averaging (search for similar items in EconPapers)
JEL-codes: C32 C52 E32 E58 (search for similar items in EconPapers)
Date: 2024-02-23, Revised 2024-02-23
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