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Estimating the Output Gap to Support the Management of Interest Rates in Vietnam

  • Giang Huong Nguyen

    (The State Bank of Vietnam)

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    In this paper, I apply three methods to estimate the output gap for Vietnam to support the conduct of monetary policy of the State Bank: the Hodrick-Prescott Filter, the production function approach and Bayesian estimation. I then compare the results obtained from these approaches and discuss their advantages and disadvantages to choose the optimal method for the estimation of the output gap for the State Bank of Vietnam. For the Bayesian approach, my paper closedly relies on the paper of Tim Willems (2011) with some modifications to fit the situation of Vietnam. The output gap estimated by Bayesian method appears to be the most consistent with the economic developments of Vietnam.

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    Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 05-2014.

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    Length: 33 pages
    Date of creation: 25 Feb 2014
    Date of revision:
    Handle: RePEc:gii:giihei:heidwp05-2014
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    1. Pedro Duarte Neves & Susana Botas & Carlos Robalo Marques, 1998. "Estimation of potencial output for the Portuguese economy," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    2. Regina Kaiser & Agustín Maravall, 1999. "Estimation of the Business Cycle: a Modified Hodrick-Prescott Filter," Banco de Espa�a Working Papers 9912, Banco de Espa�a.
    3. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
    4. Francesca D'Auria & Cécile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 420, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Berlemann, Michael & Wesselhöft, Jan-Erik, 2012. "Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method – New Empirical Evidence for 103 Countries –," Working Paper 125/2012, Helmut Schmidt University, Hamburg.
    6. Natan P. Epstein & Corrado Macchiarelli, 2010. "Estimating Poland's Potential Output: A Production Function Approach," IMF Working Papers 10/15, International Monetary Fund.
    7. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
    8. 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.
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