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Uncertainty in the Estimation of Potential Output and Implications for the Conduct of Monetary Policy

  • Sra Chuenchoksan

    (Bank of Thailand)

  • Don Nakornthab

    (Bank of Thailand)

  • Surach Tanboon

    (Bank of Thailand)

Registered author(s):

    This paper looks at the implications of uncertainty in potential output estimation for the conduct of monetary policy. Our findings of potential output and the output gap for Thailand are based on commonly used methods such as the Hodrick-Prescott filter and unobserved component models. Estimation problems associated with real-time data, parameter uncertainty, and model uncertainty are investigated. In dealing with such uncertainties, we review various solutions from both theoretical and practical aspects of monetary policy design.

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    Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2008-04.

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    Length: 52 pages
    Date of creation: Apr 2008
    Date of revision:
    Handle: RePEc:bth:wpaper:2008-04
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    14. McCallum, B.T. & Nelson, E., 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Papers 644, Stockholm - International Economic Studies.
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    17. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 310-332.
    18. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
    19. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
    20. Leitemo, Kai & Lonning, Ingunn, 2006. "Simple Monetary Policymaking without the Output Gap," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1619-1640, September.
    21. Edge, Rochelle M. & Kiley, Michael T. & Laforte, Jean-Philippe, 2008. "Natural rate measures in an estimated DSGE model of the U.S. economy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2512-2535, August.
    22. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
    23. Katharine Neiss & Edward Nelson, 2002. "Inflation dynamics, marginal cost, and the output gap: evidence from three countries," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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