Double conditioned potential output
AbstractThe central point of this paper is that both - internal and external - equilibria ought to be involved in the estimation of potential output. If only the data on inflation, unemployment rate and wages are used for its evaluation, no certainty exists that such a level will correspond to a stable foreign trade balance. Our attempt is based on the following methodological assumptions: • the potential output is concomitantly associated with a constant inflation and sustainable relative foreign trade balance (ratio of net export to gross domestic product); • all supply shocks affect this level, potential output being, therefore, a variable indicator; • consequently, the output gap reflects exclusively the demand pressure. The proposed computational algorithm comprises utilisation of orthogonal regression. It is exemplified on seasonally adjusted quarterly statistical series of the Romanian transition economy; this application shows that the output gap really contains significant regular and irregular cyclical components.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 35769.
Date of creation: 2004
Date of revision:
Potential Output; Output Gap; Orthogonal Regression; Cycle;
Other versions of this item:
- Dobrescu, Emilian, 2007. "Double Conditioned Potential Output," Working Papers of Institute for Economic Forecasting 070701, Institute for Economic Forecasting.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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