Simultaneous Determination of NAIRU, Output Gaps, and Structural Budget Balances: Swedish Evidence

Abstract

Economists are often concerned with estimates of three unobservable variables: the NAIRU, the output gap, and the structural budget balance. Although the main purpose of many existing methods is to remove effects stemming from the same business cycle, the three variables are estimated in different models. In this paper, we propose a new unifying approach to estimate NAIRU, output gaps, and structural budget balances in the same model. A structural VAR model, designed to take the non-stationarity of European unemployment into account, is applied and we provide Swedish evidence using yearly data for the period 1950-2004.

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