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Alternative Methods Of Estimating Output Gap For Turkey

Author

Listed:
  • Saraçoğlu, Bedriye

    (Gazi University)

  • Yiğit, Özlem

    (Turkey Statistical Institute)

  • Koçak, Necmettin Alpay

    (Turkey Statistical Institute)

Abstract

Output gap is defined as the difference between the potential output and actual output. There are several approaches used in the literature to estimate output gap. With this study it is aimed to obtain alternative output gap estimations for Turkish Economy, considering the constraints of approaches that are used in the literature. With this aim, output gap is estimated using two methods such as (1) Structural VAR (Sutructural Vector Autoregressive Model-SVAR) approach proposed in Blanchard and Quah (1989), and (2) Modified Hodrick Prescott Filter based on ARIMA model proposed in Kaiser ve Maravall (2005). These methods are compared to the most frequently used HP filter method in the literature. The output gap estimations are compared in terms of their actual inflation prediction power considering that output gap estimation is an essential input in structuring price stability policy. As a result it can be asserted that output gap estimated by SVAR method produces more successful results in predicting actual inflation.

Suggested Citation

  • Saraçoğlu, Bedriye & Yiğit, Özlem & Koçak, Necmettin Alpay, 2014. "Alternative Methods Of Estimating Output Gap For Turkey," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 5(3), pages 43-65, July.
    • Handle: RePEc:ris:buecrj:0157
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    More about this item

    Keywords

    Output gap; Phillips curve; inflation forecast; modified HP filter; SVAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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