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Estimation of Output Gap for Pakistan


  • Mian Abdullah Tahir

    () (State Bank of Pakistan)

  • Waqas Ahmad

    () (State Bank of Pakistan)


A comprehensive exercise is conducted for the estimation of potential output and output gap for Pakistan while considering shortcomings of existing relevant literature. A number of approaches, combining both state-space and structural estimation have been employed for this purpose. These include Bayesian inference, multivariate filter method, vector auto regression (with identification restrictions), state-space model and univariate filtering for estimation of output gap and potential output. The study finds fall in potential output growth of Pakistan during FY09 – FY13, has increased the economy’s vulnerability by making it more susceptible to demand shocks. Forecast of output gap on quarterly and annual frequencies for FY17 is also presented portraying upbeat aggregate demand going forward.

Suggested Citation

  • Mian Abdullah Tahir & Waqas Ahmad, 2017. "Estimation of Output Gap for Pakistan," SBP Working Paper Series 85, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:85

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    More about this item


    State–Space Models; Potential Output; Output Gap.;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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