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Potential output and the output gap in Estonia - a macro model based evalutaion

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  • Rasmus Kattai

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    Abstract

    There have been several data revisions to the 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

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2010-03.

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    Date of creation: 11 Feb 2010
    Date of revision: 11 Feb 2010
    Handle: RePEc:eea:boewps:wp2010-03

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    Keywords: potential output; potential growth; output gap;

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    1. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
    2. 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).
    3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    4. David Haugh & Patrice Ollivaud & David Turner, 2009. "The Macroeconomic Consequences of Banking Crises in OECD Countries," OECD Economics Department Working Papers 683, OECD Publishing.
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