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Bayesian estimation of the output gap for a small open economy: The case of Canada

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  • Berger, Tino
  • Kempa, Bernd

Abstract

We introduce a novel approach for estimating output gaps for small open economies. Identification is based on a multivariate trend-cycle decomposition in which transitory exchange rate movements are linked to the output gap and inflation. The model is then applied to Canadian data.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 112 (2011)
Issue (Month): 1 (July)
Pages: 107-112

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Handle: RePEc:eee:ecolet:v:112:y:2011:i:1:p:107-112

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Output gap Unobserved components Kalman filter Bayesian analysis;

References

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  1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  2. Arabinda Basistha, 2007. "Trend-cycle correlation, drift break and the estimation of trend and cycle in Canadian GDP," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 584-606, May.
  3. Kichian, Maral, 1999. "Measuring Potential Output within a State-Space Framework," Working Papers 99-9, Bank of Canada.
  4. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  5. Arabinda Basistha & Richard Startz, 2004. "Measuring the NAIRU with Reduced Uncertainty: A Multiple Indicator-Common Component Approach," Working Papers UWEC-2004-22, University of Washington, Department of Economics.
  6. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
  7. Planas, Christophe & Rossi, Alessandro & Fiorentini, Gabriele, 2008. "Bayesian Analysis of the Output Gap," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 18-32, January.
  8. Rapach, David E & Wohar, Mark E, 2005. "Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 887-906, October.
  9. Tino Berger & Gerdie Everaert, 2008. "Unemployment Persistence And The Nairu: A Bayesian Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 281-299, 07.
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