Prague Economic Papers 2015, 24(5):503-515 | DOI: 10.18267/j.pep.526

Hysteresis and the NAIRU: The Case of Countries in Transition

Gordana Marjanovic1, Ljiljana Maksimovic1, Nenad Stanisic2
1 Faculty of Economics, University of Kragujevac, Serbia.
2 Faculty of Economics, University of Kragujevac, Serbia (nstanisic@kg.ac.rs).

The paper examines the hysteresis hypothesis in unemployment in the case of eight selected countries in transition, using the Kalman filter and testing whether the NAIRU time series are stationary. The empirical results show that the hysteresis effect is confirmed for the majority of the countries. Testing the influence of the inflation growth rate on the decline in the NAIRU and vice versa, performed using the panel regression with fixed effect, confirmed that the increase in inflation leads to decline in the NAIRU. The conclusion also suggests the existence of the impact of actual unemployment rate on the NAIRU, which may be affected by the change in aggregate demand.

Keywords: unemployment, NAIRU, Kalman filter, inflation, hysteresis
JEL classification: C13, E24, E30, E50

Published: January 1, 2015  Show citation

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Marjanovic, G., Maksimovic, L., & Stanisic, N. (2015). Hysteresis and the NAIRU: The Case of Countries in Transition. Prague Economic Papers, 24(5), 503-515. doi: 10.18267/j.pep.526
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