Estimating Time-Varying Potential Output and NAIRU Using a Multivariate Filter for Turkey

Title:	Estimating Time-Varying Potential Output and NAIRU Using a Multivariate Filter for Turkey
Number:	21/39
Author(s):	Mert Gökcü
Language:	English
Date:	December 2021
Abstract:	Potential output and NAIRU estimates are crucial to identify the state of the economy for both monetary policymakers and fiscal policy authorities. This paper extends the multivariate filter approach developed for Turkey by integrating the capacity utilization block into the model. Also, broader-defined unemployment rate is included as alternative in the model. The idea is that traditional measure of unemployment rate may not fully capture the cycle conditions of the labor market. The results show that long and deep recessions resulted in hysteresis in the labor market and reduced potential output. While estimate of the slack in the output was smaller in the recent shock (2018-3: 2018-4), the unemployment rate and NAIRU increased sharply with reaching the highest levels historically in recession periods. Due to weak foreign demand and composition of industrial sector products, the slack in capacity utilization rate was higher in the global financial crisis (2008-2: 2009-1).
Keywords:	Potential output, Output gap, NAIRU, Multivariate filter, Bayesian estimation
JEL Codes:	C51; E32; E52