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Did the Crisis Affect Potential Output?

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  • El-Shagi, Makram

Abstract

Conventional Phillips-curve models that are used to estimate the output gap detect a substantial decline in potential output due to the present crisis. Using a multivariate state space model, we show that this result does not hold if the long run role of excess liquidity (that we estimate endogeneously) for inflation is taken into account.

Suggested Citation

  • El-Shagi, Makram, 2010. "Did the Crisis Affect Potential Output?," IWH Discussion Papers 9/2010, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-9-10
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    References listed on IDEAS

    as
    1. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
    2. Orphanides, Athanasios & Porter, Richard D., 2000. "P revisited: money-based inflation forecasts with a changing equilibrium velocity," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 87-100.
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    More about this item

    Keywords

    output gap; liquidity; state space models; Produktionslücke; Liquidität; Zustandsraummodelle;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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