Abstract:
Since the moment when Milton Friedman introduced a natural rate of
unemployment into economic theory, this indicator has been one of the most important
quantities in macroeconomics. However, in contrast to other key macroeconomic
indicators, the natural rate of unemployment is very difficult to be accurately
quantified. The following paper suggests a simple mathematic model, on whose base
the natural rate of unemployment can be determined. This model was used to set the
natural rate of unemployment in the Czech Republic and its development over time
period of the last 23 years based on the Macroeconomic Forecast by the Ministry of
Finance of the Czech Republic and compared with Okun´s Law. When calculating the
natural rate of unemployment the suggested model eliminates the differences resulting
from different utilization of production capacities and the changing rate of economic
activity of population in the course of time. As all other models, this model also works
with certain simplified assumptions; however, its advantage is the possibility of
gradual implementation of more and more difficult parameters of real economy as
new variables. Nevertheless, even in its basic form, the model provides good results,
which coincide with theoretic basis and monitored facts.
