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Estimating the Output Gap : A Kalman Filter Approach

Author

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  • L. Christopher Plantier
  • Ozer Karagedikli

Abstract

The output gap plays a crucial role in thinking of many inflation targeting central banks yet, the real time estimates of the output gap undergo substantial revisions as more data become available. In this paper, we use the state space framework to augment the simple Hodrick-Prescott filter with additional structural equations to i) reduce the size of revisions ii) reduce the uncertainty around the mean real time output gap estimates. We use data from New Zealand in this study. We use the relationship between output and the capacity utilisation and output and unemployment to infer the unobserved potential output.

Suggested Citation

  • L. Christopher Plantier & Ozer Karagedikli, 2004. "Estimating the Output Gap : A Kalman Filter Approach," Econometric Society 2004 Australasian Meetings 210, Econometric Society.
    • Handle: RePEc:ecm:ausm04:210
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    More about this item

    Keywords

    output gap; Kalman filter; New Zealand; real time;
    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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