Bonthuis, B., Jarvis, V., and Vanhala, J. 2013. What’s going on behind the euro area Beveridge curve(s)? Working Paper Series 1586, European Central Bank.
Elsby, M., Hobijn, B., and §ahin, A. 2013, Unemployment Dynamics in the OECD, The Review of Economics and Statistics, VOL. 95, No. 2, pp. 530–548.
Gianella, C., Koske, I., Rusticelli, E., Chatal, O., 2008. What Drives the NAIRU? Evidence from a Panel of OECD Countries. OECD Economics Department Working Paper No. 649. OECD Publishing.
Guichard, S., Rusticelli, E., 2011. Reassessing the NAIRUs after the Crisis. OECD Economics Department Working Papers No. 918. OECD Publishing.
Prepared by Christian Ebeke and Greetje Everaert under the guidance of Tom Dorsey. Bartek Augustyniak provided excellent research assistance, and Solange de Moraes Rego and Fernando Morán Arce provided outstanding support.
The equilibrium or structural level of unemployment (NAIRU or NAWRU) is the level of unemployment that is consistent with a balanced economy where the output gap is closed. In this state, the level of unemployment does not generate accelerating inflationary or wage pressures. Cyclical unemployment occurs when the output gap is negative.
The correlation is 0.86 percent for the Baltics. For countries individually, the correlation is 0.81 for Estonia, 0.82 for Latvia and 0.87 for Lithuania (2002q1-2002q2).
Given that our estimation of the NAIRU relied on inflation dynamics in the Philips curve, it also indicates that a very similar result would be obtained if we were to use wage dynamics instead (the non-accelerating wage rate of unemployment or NAWRU).
There is variation among the Baltics with Lithuania lagging and Estonia outperforming the OECD average.