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Working paper

Estimating New Zealand's Output Gap Using a Small Macro Model (WP 13/18)

Issue date: 
Tuesday, 16 July 2013
Status: 
Current
View point: 
Document Date: 
Publication category: 
JEL classification: 
C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
C53 - Forecasting Models; Simulation Methods
E31 - Price Level; Inflation; Deflation
E32 - Business Fluctuations; Cycles
Fiscal year: 
2013/14
ISBN: 
978-0-478-40362-6

Formats and related files

In this paper, we estimate a small macro model using Bayesian techniques, which allows us to assess the level of uncertainty of the estimates of the output gap.

Abstract

The Treasury has been testing the assumptions on the potential growth rate of the New Zealand economy. In this paper, we estimate a small macro model using Bayesian techniques, which allows us to assess the level of uncertainty of the estimates of the output gap. The model is based on the work of Benes et al. (2010) with some modifications reflecting New Zealand economic conditions. Although this new technique does not reduce the uncertainty in measures of potential output as indicated by large confidence bands for the estimates, it provides us a useful tool with an economic framework for measuring potential output.

This Working Paper is available in Adobe PDF and HTML. Using PDF Files

Acknowledgements

I would like to thank Michael Ryan, Peter Mawson, Jamie Murray, Patrick Conway, Michael Reddell, Thora Helgadottir, Graeme Wells,
Kirdan Lees and Brigid Monagel for helpful comments on an earlier version of this paper.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s).
They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Last updated: 
Wednesday, 10 July 2013