NAWRU Estimation Using StructuralLabour Market Indicators
Werner Roeger and
No 69, European Economy - Discussion Papers 2015 - from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission
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.
JEL-codes: E31 E32 J0 O4 (search for similar items in EconPapers)
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