Estimating the output gap in the Polish economy: the VECM approach (original) (raw)
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Estimating the Output Gap in a Changing Economy
Southern Economic Journal, 2007
used in output gap estimation are subject to criticism as being purely statistical and having no economic content. The information content of the output gap measures estimated by standard multivariate filtering techniques, on the other hand, can be distorted because of the possibly unrealistic restriction that system parameters stay constant over time. In this study, we seek to address these shortcomings by proposing an output gap estimation method that takes into account changing economic relations. We employ a nonlinear time series framework along with an extended Kalman filter, in which economic content is used by inflation and output gap dynamics and the parameters are allowed to be time varying. We use the Turkish economy as a laboratory to show that our method provides useful results, both in terms of the properties of output gap estimates and for the assessment of change in macroeconomic dynamics.
The output gap estimated for Croatia for the period 1994-1999
In this paper several univariate and multivariate techniques for estimating the output gap for Croatia are used-among others a linear and quadratic time trend, various filters (HP, Holt-Winters, double-smooth), the Cobb-Douglas production function and unrestricted VAR techniques were applied. The gaps were estimated for the period 1989-1999 and the sub-period 1994 to 1999. We focused on the latter period due to structural changes prior to the introduction of the anti-inflationary programme at the end of 1993. The estimated gaps are
Estimating Output Gap for the Turkish Economy
2005
This paper presents a time-varying parameter methodology for constructing an estimate of output gap for Turkey. We employ the extended Kalman filter technique in a multivariate setting in which economic content is utilized by the inclusion of inflation and output gap dynamics. As a by-product, we characterize time varying nature of output gap and inflation dynamics. Several results emerge: First, we show that estimating the potential output and output gap in a multivariate setting has several advantages over univariate techniques such as the HP filter. Second, our output gap estimates confirm the historical boom-bust cycles in Turkey and point out that business cycle displays sharp turning points rather than exhibiting a smooth pattern. Third, output gap seems to have contributed dramatically to the disinflation process in 2002-2004. Fourth, estimated time varying parameters suggest that, recently, the relation between real interest rates and the output gap seems to have been conver...
Estimating the output gap for the Maltese economy
2004
An attempt is made in this paper to arrive at an estimate of the output gap for the Maltese economy on a quarterly and annual basis. Two approaches are adopted, namely the Hodrick-Prescott filter and the aggregate production function method, with their results being benchmarked with the results of two other studies. The methods adopted in this paper indicate that the Maltese economy passed through three separate business cycles during the last three decades, with the size of the fluctuations moderating over time. Potential output growth is estimated to have declined significantly during the nineties, as factors of production are growing by a smaller margin. This indicates the importance of carrying out structural reforms that would boost productivity growth.
2015
This paper assesses the performance of the EU’s production function (PF) methodology for estimating output gaps since its introduction in the EU's policy surveillance procedures in 2002. It looks at how the methodology has performed relative to the method used up until 2002 (i.e. the Hodrick Prescott filter), with respect to its ability to track the euro area's business cycle. It also compares the PF method with the equivalent OECD and IMF methodologies in terms of its stability, real-time reliability and financial crisis performance. The analysis shows that the EU's PF method has performed better than the HP filter and the equivalent OECD & IMF methods. The results consequently strongly support the 2002 ECOFIN Council decision to adopt the PF method as the EU's ‘commonly agreed’ reference method. Nevertheless, whilst the PF method has clearly done well in relative terms since it was first introduced, the analysis also recognises the absolute size of the output gap e...
The Causal Analysis of the Relationship between Inflation and Output Gap in Turkey
The purpose of the paper is to study dynamic relationships between the inflation and output gap by using Granger causality, Impulse response and variance decompositions analysis within VECM framework for the quarterly data over the first period of 2003 and second period of 2016. The results of the study indicate that the output gap Granger cause the inflation in Turkey both in short-and long-runs. Also, sign of the causality is negative and same causal relationships between two variables hold beyond the sample period. The results should be taken as an evidence of the conclusion that the output gap has important implications for the CBRT's monetary policy.
A Small Model for Output Gap and Potential Growth Estimation. An Application to Bulgaria
This paper presents the logic and structure of a small and parsimonious macroeconometric model designed for output gap and potential growth estimation in a data-poor environment. Such results can be useful in calculating the cyclically adjusted budget balances which are a key indicator for fiscal policies design in the framework of the EU Stability and Growth Pact. Empirical results using Bulgarian data are also included for illustrative purposes.
The Forecasting Performance of Real Time Estimates of the Euro Area Output Gap
2010
This paper provides real time evidence on the usefulness of the euro area output gap as a leading indicator for inflation and growth. A genuine real-time data set for the euro area is used, including vintages of several alternative gap estimates. It turns out that, despite some difference across output gap estimates and forecast horizons, the results point clearly to a lack of any usefulness of real-time output gap estimates for inflation forecasting both in the short term (one-quarter and one-year ahead) and the medium term (two-year and three-year ahead). By contrast, we find some evidence that several output gap estimates are useful to forecast real GDP growth, particularly in the short term, and some appear also useful in the medium run. A comparison with the US yields similar conclusions. . Musso: European Central Bank, alberto.musso@ecb.int. We thank, without implicating, Todd Clark for many useful suggestions. We are also grateful to Wolfgang Lemke, Simon van Norden, Ken West, and participants to an ESCB seminar, the 5 th Eurostat Colloquium and a CES-IFO workshop for useful comments. All remaining errors are the sole responsibility of the authors. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the European Central Bank.
Real time estimates of the euro area output gap: Reliability and forecasting performance
2010
useful comments. All remaining errors are the sole responsibility of the authors. The opinions expressed in this paper are grateful to Simon van Norden, Ken West, and participants to an ESCB seminar, the 5 Eurostat Colloquium and a CES-IFO workshop for 1 We thank, without implicating, Todd Clark for many useful suggestions and Mary Santoianni for assisting us in collecting the data. We are also Abstract 4