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Do We Really Need Filters In Estimating Output Gap? : Evidence From Turkey

Author

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  • Evren Erdogan Cosar
  • Sevim Kosem
  • Cagri Sarikaya

Abstract

We estimate an output gap indicator for Turkey without resorting to any kind of a filtering procedure. Our approach stands on a two-step procedure : First, we pick such variables that are directly informative about the phase of the business cycle, where the decision of choice depends on their statistical and economic significance in estimated Phillips curves. Second, we model business cycles as the common driver of the selected variables and estimate it in a small scale dynamic factor model setting. In this way, we produce a filter-free measure of output gap, which proves to be superior to any other filter-based measure as being immune to end-sample revisions. Using up-to-date survey-based variables instead of filtered macroeconomic aggregates, we not only postulate a way of avoiding revision uncertainty embodied in statistical filters, but also meet the need for timely information as we deliver information on the cyclical position of the economy two-quarters in advance of the GDP.

Suggested Citation

  • Evren Erdogan Cosar & Sevim Kosem & Cagri Sarikaya, 2013. "Do We Really Need Filters In Estimating Output Gap? : Evidence From Turkey," Working Papers 1333, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1333
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    References listed on IDEAS

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    More about this item

    Keywords

    Output gap; statistical detrending filters; dynamic factor models; revisions in output gap estimates;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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