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Potential Product: Quantitative Analysis for the Czech Republic


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  • Osvald Vašíček
  • Martin Fukač


In this paper we try to measure Non-Accelerating Inflation Product (NAIP) as a special form of the potential product and consequently the production gap, within a state-space framework. Our starting point is the Kitchian (/999) unobserved-component model (applied to the Canadian economy). We modify assumptions to reflect specific aspects of the small transitive Czech economy. We focus, in particular, a) on the specification of the output component, b) on the issue of whether to use net or consumer price inflation in the models, and c) on the integration of appropriate supply shocks in the expectation augmented Phillips curve. As the consequence we feel that the production gap state-space model can be quite useful information source for the formulation of monetary policy.

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Bibliographic Info

Article provided by The Czech Econometric Society in its journal Bulletin of the Czech Econometric Society.

Volume (Year): 7 (2000)
Issue (Month): 12 ()

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Handle: RePEc:czx:journl:v:7:y:2000:i:12:id:89

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Keywords: Non-Accelerating Inflation Product; expectation augmented Phillips curve; extended Kalman filter with backward smoothing; production gap; money illusion; misperception; exogenous shocks;

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