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Potential Output in DSGE Models

Listed author(s):
  • Igor Vetlov

    ()

    (Bank of Lithuania)

  • Tibor Hlédik

    ()

    (Czech National Bank)

  • Magnus Jonsson

    ()

    (Sveriges Riksbank)

  • Henrik Kucsera

    ()

    (Magyar Nemzeti Bank)

  • Massimiliano Pisani

    ()

    (Banca d'Italia)

In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures.

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File URL: http://www.lb.lt/wp2011_no_9
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Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 9.

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Length: 48 pages
Date of creation: 03 Jun 2011
Handle: RePEc:lie:wpaper:9
Contact details of provider: Postal:
Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania

Phone: 22 40 08
Fax: 22 15 01
Web page: http://www.lbank.lt/
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  6. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
  7. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
  8. Neiss, Katharine S. & Nelson, Edward, 2003. "The Real-Interest-Rate Gap As An Inflation Indicator," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 239-262, April.
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