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No 4. Mihnea Constantinescu, Anh D.M. Nguyen. Unemployment or credit: Who holds the potential? Results from a small-open economy
2017-04-24
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No 3. Jurgita Pesliakaitė. Determinants of unemployment in CEE-10 economies: The role of labour market institutions and the macroeconomic environment in 2002–2012
2016-11-23
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No 2. Daniel Baksa, Mihnea Constantinescu, Zsuzsa Munkacsi. Aging, informality and public policies in a small open economy
2016-09-23
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No 1. Povilas Lastauskas, Julius Stakėnas. Openness and structural labour market reforms: Counterfactuals for Lithuania
2016-08-25
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No 4. Mihnea Constantinescu, Anh D.M. Nguyen. Unemployment or credit: Who holds the potential? Results from a small-open economy

This paper investigates the importance of unemployment and credit in determining the potential level of real activity for a small-open economy with a low degree of financialization. We estimate a multivariate unobserved component model (MUC) to derive the potential output and its associated output gap for the Lithuanian economy. The model is estimated via Bayesian methods and the time-paths of unobserved variables are extracted via the Kalman filter. We find that the inclusion of unemployment into the MUC model substantially improves the estimates of output gap in real-time. Once information about unemployment is accounted for, adding information about credit does not substantially alter either the estimates of output gap or its performance in real time. We uncover a strong negative correlation between the model-implied unemployment gap (without credit) and real credit growth. This explains the relatively muted impact of the financial variable on the level and dynamics of the output gap. Data revisions appear not to be the primary source of revisions on output gaps estimates.

JEL Codes: C11, C32, E24, E32.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

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No 3. Jurgita Pesliakaitė. Determinants of unemployment in CEE-10 economies: The role of labour market institutions and the macroeconomic environment in 2002–2012

The view that an institutional structure causes rigidities in the labour market is broadly accepted by policy makers. This assessment is conventionally based on unemployment theories that establish a link between labour market institutions and unemployment in the long run. Empirical research engages in investigation of whether the theoretical link between unemployment and labour market institutions could be proved to prevail. This paper provides an econometric analysis of the determinants of unemployment in the long run in a set of Central and Eastern European countries for the period of 2002–2012. Evidence that an institutional structure causes rigidities in the labour market and has a direct effect on the unemployment rate in these economies is found in this study. A set of non-structural indicators, accounted by macroeconomic shocks, also prove to have effects on the labour market outcomes. From a policy making perspective, such implications suggest that structural labour market reforms and increases in the overall flexibility of the labour market in these economies are necessary to bring unemployment rates down.

JEL Codes: E02, J60.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

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No 2. Daniel Baksa, Mihnea Constantinescu, Zsuzsa Munkacsi. Aging, informality and public policies in a small open economy

We extend OGRE, the overlapping generation model developed by Baksa and Munkacsi (2016) by adding openness. We then employ the model to explore how the macroeconomic effects of aging, assumed to manifest itself as a decrease in the mortality rate, can be counteracted through public policies. The extended version inherits the previous modelling features of OGRE allowing us to also account for the impact openness has on the effectiveness of the considered policies.

JEL Codes: E24, E26, F41, H55, J11, J46.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

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No 1. Povilas Lastauskas, Julius Stakėnas. Openness and structural labour market reforms: Counterfactuals for Lithuania

This paper deals with the macroeconomic responses to labour market reforms; something of utmost importance in times of monetary policy reaching its limits to affect real economy. We shed more light on the plausible macroeconomic reactions to the ex ante (planned but not implemented yet) reforms in the labour market, taking a currently proposed Social Model in Lithuania as an example. Not only contributing to the current debate on the efficacy of announced structural reforms, we also add to the literature on policy evaluation by assessing reforms from a global perspective. Omission of an international dimension could lead to seriously biased results on policy effects for any open and small economy. Taking trade connectivity and openness into account, we demonstrate macroeconomic reactions to shocks in unemployment benefits, active labour market policies, and tax wedge on the reforming economy. We contrast the results with the approach when global interdependencies are ignored – still a standard practice. Using a satellite model for the intermediate trade, we link the global framework with the sectoral extensive margin, which changes some of the initial findings. A discussion on counterfactuals, which use both cross-sectional and temporal dimensions to tackle anticipation effects, is also presented.

JEL Codes: C33, C54, E62, J38.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.