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Estimating New Zealand’s Output Gap Using a Small Macro Model

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  • Kam Leong Szeto

    ()
    (The Treasury)

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    Abstract

    The Treasury has been testing the assumptions on the potential growth rate of the New Zealand economy. In this paper, we estimate a small macro model using Bayesian techniques, which allows us to assess the level of uncertainty of the estimates of the output gap. The model is based on the work of Benes et al. (2010) with some modifications reflecting New Zealand economic conditions. Although this new technique does not reduce the uncertainty in measures of potential output as indicated by large confidence bands for the estimates, it provides us a useful tool with an economic framework for measuring potential output.

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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2013/13-18/twp13-18.pdf
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    Bibliographic Info

    Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 13/18.

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    Length: 34
    Date of creation: Jul 2013
    Date of revision:
    Handle: RePEc:nzt:nztwps:13/18

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    Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
    Phone: +64-4-472 2733
    Fax: +64-4-473 0982
    Web page: http://www.treasury.govt.nz
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    Related research

    Keywords: Potential output; Potential growth rate; Output gap; Unemployment; NAIRU; Inflation and Capacity;

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    1. L Christopher Plantier & Ozer Karagedikli, 2005. "Do so-called multivariate filters have better revision properties? An empirical analysis," Computing in Economics and Finance 2005, Society for Computational Economics 250, Society for Computational Economics.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 466-72, May.
    3. Danny Quah, 1988. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 498, Massachusetts Institute of Technology (MIT), Department of Economics.
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