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Estimating the potential output of the euro area with a semi-structural multivariate Hodrick-Prescott filter

  • Matthieu LEMOINE
  • Odile CHAGNY

In this paper, we develop an analytical framework for the estimation of potential output and output gaps for the euro area combining multivariate filtering techniques with the production function approach. The advantage of this methodology lies in the fact that it combines a model based approach to explicit statistical assumptions concerning the estimation of the potential values of the components of the production function. We discuss the production function approach and the main issues raised by this approach. We then present the main empirical studies which have estimated production function based output gaps with multivariate filtering techniques. The production function approach will be implemented with Multivariate Hodrick-Prescott filters (HPMV). The advantage of the multivariate production function approach will also be assessed through using a variety of statistical criteria

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 344.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:344
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  18. Rünstler, Gerhard, 2002. "The information content of real-time output gap estimates, an application to the euro area," Working Paper Series 0182, European Central Bank.
  19. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
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