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Univariate Potential Output Estimations for Hungary

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  • Zsolt Darvas

    ()
    (Magyar Nemzeti Bank)

  • Gábor Vadas

    ()
    (Magyar Nemzeti Bank)

Abstract

Potential output figures are important ingredients of many macroeconomic models and are routinely applied by policy makers and global agencies. Despite its widespread use, estimation of potential output is at best uncertain and depends heavily on the model. The task of estimating potential output is an even more dubious exercise for countries experiencing huge structural changes, such as transition countries. In this paper we apply univariate methods to estimate and evaluate Hungarian potential output, paying special attention to structural breaks. In addition to statistical evaluation, we also assess the appropriateness of various methods by expertise judgement of the results, since we argue that mechanical adoption of univariate techniques might led to erroneous interpretation of the business cycle. As all methods have strengths and weaknesses, we derive a single measure of potential output by weighting those methods that pass both the statistical and expertise criteria. As standard errors, which might be used for deriving weights, are not available for some of the methods, we base our weights on similar but computable statistics, namely on revisions of the output gap for all dates by recursively estimating the models. Finally, we compare our estimated gaps with the result of the only published Hungarian output gap measure of Darvas-Simon (2000b), which is based on an economic model.

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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 2003/8.

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Length: 86 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:mnb:wpaper:2003/8

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Keywords: combination; detrending; output gap; revision.;

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Citations

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Cited by:
  1. Moisa Altar & Ciprian Necula & Gabriel Bobeica, 2009. "A Robust Assessment of the Romanian Business Cycle," Advances in Economic and Financial Research - DOFIN Working Paper Series 28, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
  2. Darvas, Zsolt & Szapáry, György, 2004. "Konjunktúraciklusok együttmozgása a régi és új EU-tagországokban
    [Business cycle harmonization in new and old EU member-states]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 415-448.
  3. Moisa, Altar & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating Potential GDP for the Romanian Economy. An Eclectic Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-25, September.

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