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Stylised facts from output gap measures

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    Abstract

    This paper compares three models of the output gap in New Zealand - the Reserve Bank of New Zealand's incumbent MV filter, estimates from a Structural VAR, and a multivariate unobserved components model - and investigates whether there are features that are consistent across the measures of the gap. Various detrending methods are used for benchmarking the output gap measures, including a linear trend, a fourth difference filter, a band-pass filter, the Hodrick-Prescott filter, an "optimal" procedure, and a nonparametric estimator of permanent trend. The estimates of the gap are examined to see how they compare as to the lengths and amplitudes of cycles, whether they exhibit regular periodicity and regular shapes, whether they are symmetric in phases and severity of swings, and whether they point to the same turning points. The analysis leads to the conclusion that while different filters result in estimates of the output gap with quite different properties, the three models are generally in agreement about the historical profile of the output gap, if not its precise level. Moreover, there are signs that the models are increasingly in agreement about the level of the gap, indicating that the growth cycle is becoming more regular in the 1990s.

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    File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2000/dp00_7.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2000/07.

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    Length: 23p
    Date of creation: Jan 2000
    Date of revision:
    Handle: RePEc:nzb:nzbdps:2000/07

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    1. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
    2. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
    3. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    4. C. John McDermott & Eswar Prasad & Pierre-Richard Agénor, 1999. "Macroeconomic Fluctuations in Developing Countries," IMF Working Papers 99/35, International Monetary Fund.
    5. C. John McDermott & Alasdair Scott, 2000. "Concordance in Business Cycles," IMF Working Papers 00/37, International Monetary Fund.
    6. Don Harding & Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series wp1999n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. 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.
    8. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
    9. Fabio Canova, 1994. "Does detrending matter for the determination of the reference cycle and the selection of turning points?," Economics Working Papers 113, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1995.
    10. David T. Coe & C. John McDermott, 1997. "Does the Gap Model Work in Asia?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 59-80, March.
    11. James Tobin, 1997. "Supply Constraints on Employment and Output: NAIRU Versus Natural Rate," Cowles Foundation Discussion Papers 1150, Cowles Foundation for Research in Economics, Yale University.
    12. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
    13. Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand.
    14. 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.
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    Cited by:
    1. Bjørnland, Hilde C. & Brubakk, Leif & Jore, Anne Sofie, 2006. "Forecasting inflation with an uncertain output gap," Memorandum 11/2006, Oslo University, Department of Economics.
    2. Emilian Dobrescu, 2009. "Estimating the Total Factor Productivity in Romanian Economy," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(26), pages 512-521, June.
    3. Döpke, Jörg, 2004. "Real-time data and business cycle analysis in Germany," Discussion Paper Series 1: Economic Studies 2004,11, Deutsche Bundesbank, Research Centre.
    4. C�cile Denis & Kieran Mc Morrow & Werner R�ger, 2002. "Production function approach to calculating potential growth and output gaps - estimates for the EU Member States and the US," European Economy - Economic Papers 176, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    5. Miroslav Plašil, 2011. "Potential Product, Output Gap and Uncertainty Rate Associated with Their Determination while Using the Hodrick-Prescott Filter," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 490-507.
    6. C�cile Denis & Daniel Grenouilleau & Kieran Mc Morrow & Werner R�ger, 2006. "Calculating potential growth rates and output gaps - A revised production function approach," European Economy - Economic Papers 247, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    7. Paul Cashin, 2004. "Caribbean Business Cycles," IMF Working Papers 04/136, International Monetary Fund.
    8. David E. Giles & Chad N. Stroomer, 2004. "Identifying the Cycle of a Macroeconomic Time-Series Using Fuzzy Filtering," Econometrics Working Papers 0406, Department of Economics, University of Victoria.
    9. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.

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