Natural-rate Estimates for the Australian States: An SVAR Approach

Abstract

GROENEWOLD N. and HAGGER A. J. (2003) Natural-rate estimates for the Australian states: an SVAR approach, Reg. Studies 37 , 251-263. It has long been recognized that economic policy based on national economic indicators may be inappropriate when evaluated from the point of view of individual regions making up the national economy. One indicator which has recently been widely used as a basis for the formulation of macroeconomic policy is the natural rate of unemployment. There have been various estimates of the natural rate for Australia as a whole in the recent past and these have been used for the assessment of macroeconomic policy. There are, however, no estimates of natural rates for the Australian States and so no basis for the evaluation of macroeconomic policy from the perspective of the States. This paper fills this gap in the literature and reports estimates of a series for the natural rate for each of the Australian States derived from a structural vector auto-regressive (SVAR) model. We compare the estimated natural rates to each other and to estimates of the national natural rate. We go on to an evaluation of national economic policy from the point of view of the States. GROENEWOLD N. et HAGGER A. J. (2003) L'estimation des taux naturels pour les Etats australiens: une approche SVAR, Reg. Studies 37 , 251-263. Depuis de nombreuses années, on considère que la politique économique fondée sur des clignotants économiques nationaux pourrait s' avérer mal choisie du point de vue régional. Un clignotant dont on s'est beaucoup servi pour élaborer la politique macroé conomique c'est le taux de chômage naturel. Dans les dernières années, diverses sont les estimations du taux naturel pour ce qui est de l'Australie, et on s'en est servi pour faire le bilan de la politique macroéconomique. Toujours est-il qu'il manque d'estimations au niveau des Etats australiens et, par la suite, il n'y a aucune é valuation de la politique macroéconomique du point de vue des Etats. Cet article cherche à colmater cette brèche et à signaler des estimations d'une série relative au taux naturel pour chacun des Etats australiens et qui découle d'un modèle auto-régressif vectoriel structurel (structural vector auto-regressive; SVAR). Les estimations des taux naturels sont comparées les unes aux autres et aux estimations du taux naturel national. Il s'ensuit une évaluation de la politique é conomique nationale du point de vue des Etats. GROENEWOLD N. und HAGGER A. J. (2003) Naturratenberechnungen für die Staaten Australiens: ein SVAR Ansatz, Reg. Studies 37 , 251-263. Es ist eine altbekannte Tatsache, daß Wirtschaftspolitik auf der Grundlage gesamtstaatlicher Wirtschaftsindikatoren sich als ungeeignet erweisen kann, wenn sie vom Standpunkt der individuellen Regionen bewertet wird, welche zusammen die Volkswirtschaft ausmachen. Ein in letzter Zeit oft als Grundlage für die Formulierung einer makroöikonomischen Wirtschaftspolitik verwendeter Indikator ist die natürliche Rate der Erwerbslosigkeit. In jüngster Zeit sind verschiedene Berechnu...

State and Territory Employment and Unemployment Patterns in Australia

“…The findings in Groenewold and Hagger (2003) and in Dixon, Lim and Freebairn (2010) of marked differences across states and territories in the estimated equilibrium and disequilibrium unemployment rates have important implications for policy options to reduce unemployment. First, they caution on the effectiveness of national policies, including macroeconomic policies, in reducing unemployment and on the sustainable level of unemployment.…”

“…Some idea of the differences in the unemployment rates and their trends can be seen in Figure 2, which shows the state and territory unemployment rates and their trends for 1978–2010 10 . A number of researchers—including Groenewold (1991), Debelle and Vickery (1999), Dixon and Shepherd (2001), Dixon, Shepherd and Thomson (2001), Shepherd and Dixon (2002), Groenewold and Hagger (2003), Smyth (2003) and Dixon, Lim and Freebairn (2010)—have identified considerable differences in the time series properties of the rate of unemployment across Australian states and territories 11…”

“…Groenewold and Hagger (2003) estimate time‐varying ‘natural’ rates of unemployment for the Australian states over the period 1979:2–2000:2. They define the natural rate of unemployment as that unemployment rate that would be observed if aggregate‐demand shocks were absent, the only shocks being from the supply side.…”

“…Another important policy implication is that the state which, for a long while, has had a much higher unemployment rate than the rest (Tasmania) is in this position primarily because it has a much higher natural rate than the rest. Dealing with Australia's worrying unemployment‐rate disparity is, therefore, primarily a matter of tackling Tasmania's natural rate’ (Groenewold and Hagger 2003, p. 260).…”

The Natural Rate of Unemployment Hypothesis and the Evolution of Regional Disparities in Spanish Unemployment

“…However, with local data this correlation weakens and the disparities are less persistent. Groenewold and Hagger (2003) estimate regional natural rates for the Australian regions through structural vector autoregressions and find that disparities are due to different regional NRUs. Nevertheless, depending on the region considered, the authors identify very different degrees of linkages between actual and natural rates.…”