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Estonia's potential growth revisited

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  • Rasmus Kattai

    ()
    (Research Department, Esti Pank)

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    Abstract

    There have been several data revisions to output statistics in Estonia during the past six years as methodologies have been harmonised. These changes are significant enough to require corrections to the earlier understanding of Estonia’s potential economic growth rate. In this paper the latest data vintage from 2009 is used to estimate Estonia’s potential output growth and output gap. The production function approach that has been used shows that the gap varies quite extensively, ranging from –8% in 1999 to +8% in 2007, while the average potential growth rate in 1997–2009 was around 6%. The macro model simulations expect the potential growth rate to fall in the future. The fall in the marginal productivity of production inputs makes growth slow to about 4–5% in the next five years, if there are no additional shocks to the economy.

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    Bibliographic Info

    Article provided by Baltic International Centre for Economic Policy Studies in its journal Baltic Journal of Economics.

    Volume (Year): 10 (2010)
    Issue (Month): 2 (December)
    Pages: 63-78

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    Handle: RePEc:bic:journl:v:10:y:2010:i:2:p:63-78

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    Related research

    Keywords: potential output; potential growth; output gap; production function;

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    1. Gábor Pula, 2003. "Capital Stock Estimation in Hungary: A Brief Description of Methodolgy and Results," MNB Working Papers 2003/7, Magyar Nemzeti Bank (the central bank of Hungary).
    2. David Haugh & Patrice Ollivaud & David Turner, 2009. "The Macroeconomic Consequences of Banking Crises in OECD Countries," OECD Economics Department Working Papers 683, OECD Publishing.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
    4. Rasmus Kattai, 2005. "EMMA - A Quarterly Model of the Estonian Economy," Bank of Estonia Working Papers 2005-12, Bank of Estonia, revised 12 Dec 2005.
    5. Alain GUAY & Pierre SAINT-AMANT, 2005. "Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?," Annales d'Economie et de Statistique, ENSAE, issue 77, pages 133-155.
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