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Potential Output and Foreign Trade in Small Open Economies

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Author Info

  • András Simon

    (Magyar Nemzeti Bank (at the time of writing the study))

  • Zsolt Darvas

    ()
    (Magyar Nemzeti Bank (at the time of writing the study))

Abstract

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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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2000/9.

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Length: 53 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:mnb:wpaper:2000/9

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Web page: http://www.mnb.hu/
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Related research

Keywords: economic integration; I(2)- ness; Kalman-filter; output gap; transition economies.;

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Cited by:
  1. Lommatzsch, Kirsten & Tober, Silke, 2004. "What is behind the real appreciation of the accession countries' currencies?: An investigation of the PPI-based real exchange rate," Economic Systems, Elsevier, vol. 28(4), pages 383-403, December.
  2. Gabor Vadas & Zsolt Darvas, 2005. "Univariate Potential Output Estimations for Hungary," Macroeconomics 0512009, EconWPA.
  3. Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
  4. Kónya, István & Benczúr, Péter, 2005. "Nominális növekedés egy kis, nyitott gazdaságban
    [Nominal growth in a small open economy]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 556-575.

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