In open economies excess demand in the tradables sector often manfests itself in an external deficit instead of the employment gap that is applied in the usual Phillips-curve model. The inflationary pressure in this case arises from an expected or actual weakening of the exchange rate and its pass-through into prices. This phenomenon gave the idea to define an output as sustainable ('potential') if it does not rely on a permanent increase of external indebtedness. Both domestic and foreign demand shocks generate deviations of actual aoutput from the potential. Potential output for Hungary, Mexico, and Poland was estimated using the Kalman-filter.
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Paper provided by Magyar Nemzeti Bank (The Central Bank of Hungary) in its series MNB Working Papers with number
2000/9.
Find related papers by JEL classification: C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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