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Using additional information in estimating the output gap in Peru: a multivariate unobserved component approach

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  • Gonzalo Llosa

    ()
    (Central Bank of Peru)

  • Shirley Miller

    ()
    (Central Bank of Peru)

Abstract

One of the key elements for inflation targeting regime is the right identification of inflationary or disinflationary pressures through the output gap. In this paper we provide an estimation of the Peruvian output gap using a multivariate unobserved component (MUC) model, relying on an explicit short run relation between the output gap and inflation rate (Phillips Curve) and structural restrictions over output dynamics. The results show that the MUC output gap estimate is less sensible to end of sample problems and exhibits closer dynamics with the inflation process than the standard output gap estimates

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2005-004.

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Date of creation: Feb 2005
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Handle: RePEc:rbp:wpaper:2005-004

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Keywords: Output Gap; Inflation; Unobserved Component Model;

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