Estimating time-varying potential output and NAIRU using a multivariate filter for Türkiye

Abstract

This paper extends the multivariate filter approach for estimating potential output and NAIRU developed for Türkiye by integrating the capacity utilization block into the model. The model gives more negative estimates of the output gap and smaller estimates of NAIRU in recession periods compared to estimates without a capacity utilization block. In addition, applying an alternative model including a broader-defined unemployment rate to Turkish data results in significantly less negative output gap and unemployment gap compared to estimates with the original unemployment rate. The idea of traditional unemployment rate measurements may not adequately capture the cycle conditions of labor market is brought up in this extension.