IDEAS home Printed from https://ideas.repec.org/p/rbp/wpaper/2005-004.html
   My bibliography  Save this paper

Using additional information in estimating the output gap in Peru: a multivariate unobserved component approach

Author

Listed:
  • Gonzalo Llosa

    (Central Bank of Peru)

  • Shirley Miller

    (Central Bank of Peru)

Abstract

One of the key elements for inflation targeting regime is the right identification of inflationary or disinflationary pressures through the output gap. In this paper we provide an estimation of the Peruvian output gap using a multivariate unobserved component (MUC) model, relying on an explicit short run relation between the output gap and inflation rate (Phillips Curve) and structural restrictions over output dynamics. The results show that the MUC output gap estimate is less sensible to end of sample problems and exhibits closer dynamics with the inflation process than the standard output gap estimates

Suggested Citation

  • Gonzalo Llosa & Shirley Miller, 2005. "Using additional information in estimating the output gap in Peru: a multivariate unobserved component approach," Working Papers 2005-004, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2005-004
    as

    Download full text from publisher

    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2005/Working-Paper-04-2005.pdf
    File Function: Application/pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. 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.
    3. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    4. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    5. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
    6. Benjamin Hunt, 2000. "Inflation Targeting Under Potential Output Uncertainty," Computing in Economics and Finance 2000 180, Society for Computational Economics.
    7. Quispe Misaico, Zenón, 1998. "Una aproximación a la demanda de los principales agregados monetarios en el Perú: Junio 1991-Mayo 1997," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 3, pages 1-20.
    8. Pierre St-Amant & Simon van Norden, 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
    9. David Gruen & Tim Robinson & Andrew Stone, 2002. "Output Gaps in Real Time: Are They Reliable Enough to Use for Monetary Policy?," RBA Research Discussion Papers rdp2002-06, Reserve Bank of Australia.
    10. Harvey, A. & TTrimbur, T. & van Dijk, H., 2003. "Cyclical Components in Economic Time Series: a Bayesian Approach," Cambridge Working Papers in Economics 0302, Faculty of Economics, University of Cambridge.
    11. Leo Butler, 1996. "The Bank of Canada's New Quarterly Porjection Model Part 4 : A Semi- Structural Method to Estimate Potential Output : Combining Economic Theory with a Time-Series Filter," Technical Reports 77, Bank of Canada.
    12. Simon van Norden, 1995. "Why Is It So Hard to Measure the Current Output Gap?," Macroeconomics 9506001, University Library of Munich, Germany.
    13. Quah, Danny, 1992. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Econometrica, Econometric Society, vol. 60(1), pages 107-118, January.
    14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    15. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193, National Bureau of Economic Research, Inc.
    16. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    17. Richard Dennis, 1997. "A measure of monetary conditions," Reserve Bank of New Zealand Discussion Paper Series G97/1, Reserve Bank of New Zealand.
    18. Tito Nícias Teixeira da Silva Filho, 2002. "Estimating Brazilian Potential Output: A Production Function Approach," Working Papers Series 17, Central Bank of Brazil, Research Department.
    19. 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.
    20. Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand.
    21. Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, vol. 27(1), pages 113-129.
    22. Camba-Mendez, Gonzalo & Rodriguez-Palenzuela, Diego, 2003. "Assessment criteria for output gap estimates," Economic Modelling, Elsevier, vol. 20(3), pages 529-562, May.
    23. Clark, Todd E. & McCracken, Michael W., 2006. "The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1127-1148, August.
    24. Gordon de Brouwer, 1998. "Estimating Output Gaps," RBA Research Discussion Papers rdp9809, Reserve Bank of Australia.
    25. C John McDermott & Alasdair Scott, 1999. "Concordance in business cycles," Reserve Bank of New Zealand Discussion Paper Series G99/7, Reserve Bank of New Zealand.
    26. Renzo Rossini Miñán, 2002. "Aspectos de la adopción de un esquema de metas explícitas de inflación en el Perú," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 5(1), pages 47-67, June.
    27. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-247, July-Sept.
    28. Luca Benati, 2001. "Band-pass filtering, cointegration, and business cycle analysis," Bank of England working papers 142, Bank of England.
    29. Reeves Jonathan J. & Blyth Conrad A. & Triggs Christopher M. & Small John P., 2000. "The Hodrick-Prescott Filter, a Generalization, and a New Procedure for Extracting an Empirical Cycle from a Series," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(1), pages 1-17, April.
    30. Victor Gaiduch & Benjamin Hunt, 2000. "Inflation targeting under potential output uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2000/08, Reserve Bank of New Zealand.
    31. Yasuo Hirose & Koichiro Kamada, 2001. "A New Technique for Simultaneous Estimation of the Output Gap and Phillips Curve," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    32. Jane Haltmaier, 2001. "The use of cyclical indicators in estimating the output gap in Japan," International Finance Discussion Papers 701, Board of Governors of the Federal Reserve System (U.S.).
    33. Ms. Valerie Cerra & Ms. Sweta Chaman Saxena, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden," IMF Working Papers 2000/059, International Monetary Fund.
    34. Rünstler, Gerhard, 2002. "The information content of real-time output gap estimates, an application to the euro area," Working Paper Series 182, European Central Bank.
    35. Mr. Benjamin L Hunt & Mr. Victor Gaiduch, 2000. "Inflation Targeting Under Potential Output Uncertainty," IMF Working Papers 2000/158, International Monetary Fund.
    36. N. Gregory Mankiw, 1994. "Monetary Policy," NBER Books, National Bureau of Economic Research, Inc, number greg94-1, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," Research Department Publications 4423, Inter-American Development Bank, Research Department.
    2. Adrián Armas & Francisco Grippa, 2008. "Metas de inflación en una economía dolarizada: La experiencia del Perú," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 10(1), pages 7-44, December.
    3. Armas, Adrián & Grippa, Francisco, 2011. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications (Working Papers) 1925, Inter-American Development Bank.
    4. Adrián Armas & Francisco Grippa, 2005. "Fijación de metas inflacionarias en una economía dolarizada: la experiencia de Perú," Research Department Publications 4424, Inter-American Development Bank, Research Department.
    5. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 9-60.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martha López P., 2004. "Efficient policy rule for inflation targeting in Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 22(45), pages 80-115, June.
    2. Adriana Arreaza & Enid Blanco & Miguel Dorta, 2004. "A Small Scale Macroeconomic Model for Venezuela," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 25-38, January-J.
    3. Wayne Robinson, 2004. "Real Shocks, Credibility & Stabilization Policy in a Small Open Economy," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 39-55, January-J.
    4. Jean-Philippe Cayen & Simon van Norden, 2002. "La fiabilité des estimations de l'écart de production au Canada," Staff Working Papers 02-10, Bank of Canada.
    5. Hilde Bjørnland & Leif Brubakk & Anne Jore, 2008. "Forecasting inflation with an uncertain output gap," Empirical Economics, Springer, vol. 35(3), pages 413-436, November.
    6. Sergey Sinelnikov-Murylev & Sergey Drobyshevsky & Maria Kazakova & Michael Alexeev, 2016. "Decomposition of Russia's GDP Growth Rates," Research Paper Series, Gaidar Institute for Economic Policy, issue 167P, pages 123-123.
    7. Ahsan ul Haq Satti & Wasim Shahid Malik, 2017. "The Unreliability of Output-Gap Estimates in Real Time," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(3), pages 193-219.
    8. 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.
    9. 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.
    10. Cayen, Jean-Philippe & van Norden, Simon, 2005. "The reliability of Canadian output-gap estimates," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 373-393, December.
    11. Vashchelyuk, N.V. (Ващелюк, Н.В.) & Zubarev, Andrey (Зубарев, Андрей) & Trunin, Pavel (Трунин, Павел), 2016. "Determination of the Output Gap for the Russian Economy [Определение Разрыва Выпуска Для Российской Экономики]," Working Papers 2137, Russian Presidential Academy of National Economy and Public Administration.
    12. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 583-601, June.
    13. Mr. Andreas Billmeier, 2004. "Ghostbusting: Which Output Gap Measure Really Matters?," IMF Working Papers 2004/146, International Monetary Fund.
    14. S. Adnan H. A. S. Bukhari & Safdar Ullah Khan, 2008. "Estimating Output Gap for Pakistan Economy: Structural and Statistical Approaches," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 4, pages 31-60.
    15. Alain Guay & Pierre Saint-Amant, 2005. "Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?," Annals of Economics and Statistics, GENES, issue 77, pages 133-155.
    16. Paolo Guarda, 2002. "Potential output and the output gap in Luxembourg: some alternative methods," BCL working papers 4, Central Bank of Luxembourg.
    17. Odile Chagny & Matthieu Lemoine, 2003. "Écart de production dans la zone euro. Une estimation par le filtre de Hodrick-Prescott multivarié," Revue de l'OFCE, Presses de Sciences-Po, vol. 86(3), pages 173-202.
    18. repec:spo:wpecon:info:hdl:2441/2128 is not listed on IDEAS
    19. Alain Guay & Pierre St-Amant, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Technical Reports 78, Bank of Canada.
    20. Alasdair Scott, 2000. "Stylised facts from output gap measures," Reserve Bank of New Zealand Discussion Paper Series DP2000/07, Reserve Bank of New Zealand.
    21. Matthieu LEMOINE & Odile CHAGNY, 2005. "Estimating the potential output of the euro area with a semi-structural multivariate Hodrick-Prescott filter," Computing in Economics and Finance 2005 344, Society for Computational Economics.

    More about this item

    Keywords

    Output Gap; Inflation; Unobserved Component Model;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2005-004. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/bcrgvpe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Research Unit (email available below). General contact details of provider: https://edirc.repec.org/data/bcrgvpe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.