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Estimating the output gap for Turkey: an unobserved components approach

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  • F. OğunC
  • D. Ece

Abstract

This study specifies a basic univariate and a bivariate unobserved components model to estimate potential output using information from observable aggregates and presents results for the Turkish economy. The first specification used in the study, i.e. univariate approach, decomposes actual output into potential output that follows a random walk with a time-varying potential growth rate and a stationary output gap. The univariate specifications commonly ignore some economic content, which might be relevant for the measurement of the output gap. In this respect, the univariate model is extended by utilizing the relationship between inflation and the output gap, namely the Phillips curve. Whereas both models give similar output gap estimates, signal extraction statistics suggest that incorporating the supply side to the system reduces the parameter uncertainty and the total standard error and improves the gap estimate.

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  • F. OğunC & D. Ece, 2004. "Estimating the output gap for Turkey: an unobserved components approach," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 177-182.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:3:p:177-182
    DOI: 10.1080/1350485042000203814
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    References listed on IDEAS

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    1. Gerlach, Stefan & Smets, Frank, 1999. "Output gaps and monetary policy in the EMU area1," European Economic Review, Elsevier, vol. 43(4-6), pages 801-812, April.
    2. Víctor Gómez & Agustín Maravall, 1998. "Seasonal Adjustment and Signal Extraction in Economic Time Series," Working Papers 9809, Banco de España.
    3. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 797-814.
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    Cited by:

    1. Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2007. "Estimating the Output Gap for Chile," Working Papers Central Bank of Chile 455, Central Bank of Chile.
    2. Kappler, Marcus, 2007. "Projecting the Medium-Term: Outcomes and Errors for GDP Growth," ZEW Discussion Papers 07-068, ZEW - Leibniz Centre for European Economic Research.
    3. Evren Erdogan Cosar & Sevim Kosem & Cagri Sarikaya, 2013. "Do We Really Need Filters In Estimating Output Gap? : Evidence From Turkey," Working Papers 1333, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    4. Hakan Kara & Fethi Öğünç & ümit Özlale & Çağrı Sarıkaya, 2007. "Estimating the Output Gap in a Changing Economy," Southern Economic Journal, John Wiley & Sons, vol. 74(1), pages 269-289, July.
    5. Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2008. "La brecha de producto en Chile: medición y evaluación," Investigación Conjunta-Joint Research, in: Centro de Estudios Monetarios Latinoamericanos (CEMLA) (ed.), Estimación y Uso de Variables no Observables en la Región, edition 1, volume 1, chapter 3, pages 69-102, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    6. Rodrigo Fuentes S. & Fabián Gredig U. & Mauricio Larraín E., 2008. "The output Gap in chile: Measurement and Evaluation," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(2), pages 7-30, August.
    7. Fethi Oğunc & Inci Batmaz, 2009. "Estimating the neutral real interest rate in an emerging market economy," Applied Economics, Taylor & Francis Journals, vol. 43(6), pages 683-693.
    8. Evren Erdogan Cosar & Sevim Kosem & Cagri Sarikaya, 2012. "Alternatif Cikti Acigi Gostergeleri," CBT Research Notes in Economics 1222, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    9. Murat Ungor, 2012. "A Production Function Method of Estimating the Output Gap," CBT Research Notes in Economics 1219, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. Ekinci, Mehmet Fatih, 2019. "Intuitive and Reliable Estimates of Output Gap and Real Exchange Rate Cycles for Turkey," MPRA Paper 94698, University Library of Munich, Germany.

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