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Disentangling the unemployment rate in the Romanian economy

Disentangling the unemployment rate in the Romanian economy. MSc. student Vlad Muscalu Professor Mois ă Altăr. Introduction. Statistical approaches time series estimations Kalman filter unemployment rate – price growth relationship SVAR model

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Disentangling the unemployment rate in the Romanian economy

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  1. Disentangling the unemployment rate in the Romanian economy MSc. student Vlad Muscalu Professor Moisă Altăr

  2. Introduction • Statistical approaches • time series estimations • Kalman filter • unemployment rate – price growth relationship • SVAR model • allows data to determine how demand and supply shocks diffuse over time – employs the most economic theory reasoning

  3. Introduction • Philips curve: • Gordon (1990)

  4. Introduction Plotting a 1998-2007 Philips Curve for the Romanian economy

  5. Data • Consumer price inflation • Registered unemployment rate • Industrial production • Capacity utilization • International oil prices

  6. Adjusting the unemployment series

  7. Adjusting the unemployment series

  8. A Kalman filter approach • The model

  9. A Kalman filter approach • The model

  10. A SVAR approach

  11. A SVAR approach • Imposing long-run restrictions

  12. A SVAR approach • Expected response of unemployment to positive shocks: • Oil shocks ↑ • IS shocks ↓(LR=0) • Technology shocks ?(LR=0) • Unemployment shocks ↑ • LM shocks ↓(LR=0)

  13. A SVAR approach • Expected response of unemployment to positive shocks: • Oil shocks ↑ • IS shocks ↓(LR=0) • Technology shocks ?(LR=0) • Unemployment shocks ↑ • LM shocks ↓(LR=0)

  14. A SVAR approach • Unemployment gap: • NAIRU:

  15. A SVAR approach • SVAR determined NAIRU

  16. Conclusion • The approaches employed to estimate the NAIRU yield diverging results • Both methods imply the unemployment rate has fallen below the NAIRU since mid-2007 • The SVAR approach – which has more economic foundations – suggests the unemployment rate has fallen in excess demand territory for the last 6 years

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