Estimating potential output and the natural rate on unemployment: the case of the European Union

Abstract

This paper studies the selected European Union Member States (CzechRepublic, Hungary, Po-land and SlovakRepublic), during and after the economic crisis. Consequences on the labour market, re-spectively on unemployment are also discussed in the paper. During the crisis, real gross domestic prod-uct decreased in almost all EU countries. Massive drop of gross domestic product led to increase in the unemployment rate. The purpose of this paper is to contribute to discussion about consequences of this crisis. The paper provides also an analysis of gross domestic product and its components. The empirical analysis also tried to answer the question if it is more a return to steady–statethan the deterioration of economic performance in the case of selected European countries. In other words, it means that economic performance was above the level of potential output. We applied the Hodrick-Prescott filter for estimation potential output and the natural rate of unemployment. This method is quite frequently used to filter the trend and the cyclical time series. Research in this study is based on basic macroeconomic quarterly data between the years 1997 and 2011 which were published by Eurostat.