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Univariate Potential Output Estimations for Hungary

Author

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  • Gabor Vadas

    (Magyar Nemzeti Bank)

  • Zsolt Darvas

    (Magyar Nemzeti Bank)

Abstract

Potential output figures are important ingredients of many macroeconomic modelsand are routinely applied by policy makers and global agencies. Despite itswidespread use, estimation of potential output is at best uncertain and dependsheavily on the model. The task of estimating potential output is an even moredubious exercise for countries experiencing huge structural changes, such astransition countries. In this paper we apply univariate methods to estimate andevaluate Hungarian potential output, paying special attention to structural breaks.In addition to statistical evaluation, we also assess the appropriateness of variousmethods by expertise judgement of the results, since we argue that mechanicaladoption of univariate techniques might led to erroneous interpretation of thebusiness cycle. As all methods have strengths and weaknesses, we derive a singlemeasure of potential output by weighting those methods that pass both thestatistical and expertise criteria. As standard errors, which might be used forderiving weights, are not available for some of the methods, we base our weightson similar but computable statistics, namely on revisions of the output gap for alldates by recursively estimating the models. Finally, we compare our estimated gapswith the result of the only published Hungarian output gap measure of Darvas-Simon (2000b), which is based on an economic model.

Suggested Citation

  • Gabor Vadas & Zsolt Darvas, 2005. "Univariate Potential Output Estimations for Hungary," Macroeconomics 0512009, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0512009
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    References listed on IDEAS

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    Cited by:

    1. repec:ksa:szemle:1744 is not listed on IDEAS
    2. Moisa Altar & Ciprian Necula & Gabriel Bobeica, 2009. "A Robust Assessment of the Romanian Business Cycle," Advances in Economic and Financial Research - DOFIN Working Paper Series 28, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    3. Moisa, Altar & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating Potential GDP for the Romanian Economy. An Eclectic Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-25, September.
    4. repec:ksa:szemle:1733 is not listed on IDEAS
    5. Darvas, Zsolt & Szapáry, György, 2004. "Konjunktúraciklusok együttmozgása a régi és új EU-tagországokban
      [Business cycle harmonization in new and old EU member-states]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 415-448.
    6. Siklos, Pierre L., 2006. "Hungary's entry into the euro area: Lessons for prospective members from a monetary policy perspective," Economic Systems, Elsevier, vol. 30(4), pages 366-384, December.

    More about this item

    Keywords

    ombination; detrending; new EU members; OCA; output gap; revision;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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