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A study of potential output and output gap in the Czech Republic

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  • Václav Adamec

    (Ústav statistiky a operačního výzkumu, Mendelova univerzita v Brně, Zemědělská 1, 613 00 Brno, Česká republika)

  • Luboš Střelec

    (Ústav statistiky a operačního výzkumu, Mendelova univerzita v Brně, Zemědělská 1, 613 00 Brno, Česká republika)

Abstract

Analysis of economic cycle is of enormous importance for monitoring economic output and explaining price and wage inflation. It provides essential information for shaping economic and monetary policy of central authorities. Several methods are currently available to estimate potential output and output gap. In the current study, methods of Hodrick-Prescott filter and Cobb-Douglas production function were implemented to estimate potential output, which cannot be empirically observed. For the purpose of comparing the above methods, quarterly and annual time series of real GDP, labour and gross fixed capital starting in 1996 were used for estimation of the output gap. Relative contributions of labour, fixed capital formation and technology improvement factor towards growth of potential output were quantified for the studied series. The Cobb-Douglas production function appears to be superior to Hodrick-Prescott filter in providing quality estimates of potential output. Hodrick-Prescott filter allows estimation of potential output; nevertheless, it fails to identify components of cyclic behaviour of economic activity. Cobb-Douglas production function describes level of potential product assuming average utilization of production factors. A detailed analysis of components of economic growth in the observed period is provided.

Suggested Citation

  • Václav Adamec & Luboš Střelec, 2012. "A study of potential output and output gap in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(2), pages 9-16.
    • Handle: RePEc:mup:actaun:actaun_2012060020009
    DOI: 10.11118/actaun201260020009
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    References listed on IDEAS

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    1. Harding, Don, 2002. "The Australian Business Cycle: A New View," MPRA Paper 3698, University Library of Munich, Germany.
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    Cited by:

    1. Veronika Varvařovská & Michaela Staňková, 2021. "Does the Involvement of "Green Energy" Increase the Productivity of Companies in the Production of the Electricity Sector?," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 7(2), pages 152-164.
    2. Igor Krejčí & Kristýna Vltavská, 2013. "Measuring quarterly net fixed capital stock in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2367-2376.

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