The central argument of this paper is that both - internal and external - equilibria should be taken into account 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 assumption: - the potential output is concomitantly associated with a constant inflation and suistanable 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 is based on the use of orthogonal regression. It is exemplified on seasonally adjusted quarterly statistical series of variables charaterizing the Romanian transition economy; this application shows that the estimated output gap does contain significant regular and irregular cyclical components.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Length: 18 pages Date of creation: Jul 2007 Date of revision: Handle: RePEc:rjr:wpiecf:070701
Contact details of provider: Postal: Casa Academiei, Calea 13, Septembrie nr.13, sector 5, Bucureşti 761172 Phone: 004 021 3188148 Fax: 004 021 3188148 Email: Web page: http://www.ipe.ro/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Corina Saman).