Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden
IMF Working Papers, March 1, 2000
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- Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden
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Bibliographic details
- Authors: Sweta Chaman Saxena, Valerie Cerra
- Published: March 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451847932.001
Summary
- This paper reviews a number of different methods that can be used to estimate potential output and the output gap.
- Measures of potential output and the output gap are useful to help identify the scope for sustainable noninflationary growth and to allow an assessment of the stance of macroeconomic policies.
- The paper then compares results from some of these methods to the case of Sweden, showing the range of estimates.
Methods reviewed (as described)
- HP filter
- Production function approach
- Unobserved Components Models
- Vector Autoregression
- Detrending techniques
- Constructed output gap methods
- Use of economic theory to interpret demand shock and price level effects
Application to Sweden
- The paper applies some of the reviewed methods to Sweden and presents a range of estimates for Sweden’s potential output and output gap.
- The comparison illustrates how different methods can produce differing output gap estimates for the same country and period.
Key themes and topics covered
- Inflation
- Labor
- Output gap
- Potential output
- Prices
- Production
- Unemployment
- Unemployment rate
Keywords (as provided)
- Business Cycles
- constructed output gap
- demand shock
- Detrending
- economic theory
- HP filter
- Inflation
- Output Gap
- output gap estimate
- Potential Output
- price level
- production function
- production function approach
- Sweden
- Unemployment
- Unemployment rate
- Unobserved Components Models
- Vector Autoregression
- WP