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Estimating potential output: a semi-structural approach

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Author Info
Paul Conway
Ben Hunt (Reserve Bank of New Zealand)

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Abstract

As part of the new macroeconomic modelling project at the Reserve Bank of New Zealand, considerable effort has been directed towards constructing an historical estimate of the productive capacity of the New Zealand economy. The technique documented in this paper augments the stochastic-trend estimation approach of the Hodrick-Prescott (1997) filter with information from broad macroeconomic relationships. This strategy is designed to improve the accuracy with which the filter identifies supply (trend) and demand (cyclical) disturbances in New Zealand real output data. The evolution of inflation over the historical period is now more highly correlated with the estimated demand cycles. Further, the conditioning information improves the updating properties of the estimation technique, relative to the Hodrick-Prescott filter.

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File URL: http://www.rbnz.govt.nz/research/discusspapers/g97_9.pdf
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Publisher Info
Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number G97/9.

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Length: 18p
Date of creation: Dec 1997
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Handle: RePEc:nzb:nzbdps:1997/09

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jane T. Haltmaier, 1996. "Inflation-adjusted potential output," International Finance Discussion Papers 561, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Raymond Torres & John P. Martin, 1989. "Potential Output in the Seven Major OECD Countries," OECD Economics Department Working Papers 66, OECD Economics Department. [Downloadable!]
  3. Simon van Norden, 1995. "Why Is It So Hard to Measure the Current Output Gap?," Macroeconomics 9506001, EconWPA. [Downloadable!]
  4. Guay, A & St-Amant, P, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Working Papers-Department of Finance Canada 1996-2, Department of Finance Canada.
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  5. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  6. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278. [Downloadable!] (restricted)
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  7. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept. [Downloadable!] (restricted)
  8. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231. [Downloadable!] (restricted)
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  9. Douglas Laxton & Guy Debelle, 1996. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Working Papers 96/111, International Monetary Fund.
  10. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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