Work detail

Unemployment hysteresis in the Czech Republic

Author: Mgr. Jakub Bechný
Year: 2016 - summer
Leaders: PhDr. Jaromír Baxa Ph.D.
Work type: Economic Theory
Language: English
Pages: 113
Awards and prizes:
Abstract: This thesis presents an empirical analysis of the unemployment hysteresis in the Czech
Republic on quarterly data from 1999 to 2015. The hysteresis is modelled by allowing for:
(i) impact of the cyclical unemployment on the NAIRU; (ii) impact of the long-term unemployment
on the NAIRU. Models are written in state space form and estimated using
Bayesian approach. The main contributions of this thesis are as follows. The results provide
robust evidence in favour of the hysteresis in the Czech Republic, but precise size of
the hysteresis effect is surrounded by relatively large uncertainty. Posterior mean estimates
of key parameters indicate that in response to increase in the cyclical unemployment of 1
percentage point, the NAIRU increases by 0.15 percentage points. The first specification of
the hysteresis implies that the hysteresis induced changes in the Czech Republic’s NAIRU of
at most 1 percentage point. The hysteresis specified as impact of the long-term unemployment
on the NAIRU then implies even weaker effect, inducing changes in the NAIRU of at
most 0.6 percentage points. The models are estimated jointly with the hybrid Phillips curve
identified using survey forecasts as proxies for the expectations. Estimate of the expectations’
parameter 0.65 indicates the forward-looking nature of the Czech Republic’s inflation




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