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Estimating the New Keynesian Output Gap for Armenia via a Bayesian Approach

Author

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  • Knarik Ayvazyan

    (Monetary Policy Department, Central Bank of Armenia)

Abstract

As the New Keynesian output gap cannot be observed in practice, there is quite some debate on what this variable actually looks like. Rather than taking the standard approach of using a time trend or the HP-filter to estimate it, this paper separates trend from cycle via Bayesian estimation of a New Keynesian model, augmented with an unobserved components model for output. This provides us with a model-consistent estimate of the output gap. This estimate is compared with popular proxies used in the literature. It turns out that the benefits of using the model-based approach mainly lie in real time. Model coefficients are easily interpretable, and the output gap series is consistent with a broader analysis of Armenian economic developments.

Suggested Citation

  • Knarik Ayvazyan, 2015. "Estimating the New Keynesian Output Gap for Armenia via a Bayesian Approach," Working Papers 4, Central Bank of the Republic of Armenia.
    • Handle: RePEc:ara:wpaper:004
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    File URL: https://www.cba.am/EN/panalyticalmaterialsresearches/Analytical_05.10.2015.pdf
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    Cited by:

    1. Gnangnon, Sèna Kimm, 2020. "Aid for Trade and Services Export Diversification in Recipient-Countries," EconStor Preprints 210467, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Output Gap; Inflation; Unemployment; Unobservable Component Model; Bayesian Methods;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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