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Estimating potential output using business survey data in a SVAR framework

  • Cesaroni, Tatiana

Potential output and the related concept of output gap play a central role in the macroeconomic policy interventions and evaluations. In particular, the output gap, defined as the difference between actual and potential output, conveys useful information on the cyclical position of a given economy. The aim of this paper is to propose estimates of the Italian potential GDP based on structural VAR models. With respect to other techniques, like the univariate filters (i.e. the Hodrick-Prescott filter), the estimates obtained through the SVAR methodology are free from end-of-sample problems, thus resulting particularly useful for short-term analysis. In order to provide information on the economic fluctuations, data coming from business surveys are considered in the model. This kind of data, given their cyclical profile, are particularly useful for detrending purposes, as they allow to include information concerning the business cycle activity. To assess the estimate reliability, an end-of-sample revision evaluation is performed. The ability of the cyclical GDP component to detect business cycle turning points is then performed by comparing the estimated output gaps, extracted with different detrending methods, over the expansion and recession phases of the Italian business cycle chronology.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16324.

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Date of creation: Feb 2008
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Handle: RePEc:pra:mprapa:16324
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  1. Iris Claus, 2003. "Estimating potential output for New Zealand," Applied Economics, Taylor & Francis Journals, vol. 35(7), pages 751-760.
  2. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  3. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
  4. Athanasios Orphanides & Simon van Norden, 2001. "The Unreliability of Output Gap Estimates in Real Time," CIRANO Working Papers 2001s-57, CIRANO.
  5. Tatiana Cesaroni, 2007. "Inspecting the cyclical properties of the Italian Manufacturing Business survey data," ISAE Working Papers 83, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  6. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
  7. Simon van Norden, 1995. "Why Is It So Hard to Measure the Current Output Gap?," Macroeconomics 9506001, EconWPA.
  8. Clark, Peter K, 1987. "The Cyclical Component of U.S. Economic Activity," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 797-814, November.
  9. A'Hearn, Brian & Woitek, Ulrich, 2001. "More international evidence on the historical properties of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 321-346, April.
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