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Intuitive and Reliable Estimates of Output Gap and Real Exchange Rate Cycles for Turkey

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  • Ekinci, Mehmet Fatih

Abstract

Decomposing time series data into trend and cyclical components is among the top priorities for policy maker institutions. Comparing with the unrestricted Beveridge-Nelson decomposition and Hodrick-Prescott filter, we implement a restricted Beveridge-Nelson filter developed by Kamber et. al. (2018) which limits the volatility of trend component. Utilizing the quarterly real GDP series and monthly real exchange rate data for Turkey, we find that Beveridge-Nelson filter provides more persistent and larger cyclical values than Beveridge-Nelson decomposition. Taking the output gap estimates of Central Bank of Turkey as a benchmark, our results indicate that Beveridge-Nelson filter method yields more sensible results. We also develop a measure to make an assessment on the end-point bias. Our results show that restricted Beveridge-Nelson filter performs better than Hodrick-Prescott filter regarding the magnitude of end point bias.

Suggested Citation

  • Ekinci, Mehmet Fatih, 2019. "Intuitive and Reliable Estimates of Output Gap and Real Exchange Rate Cycles for Turkey," MPRA Paper 94698, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94698
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    File URL: https://mpra.ub.uni-muenchen.de/94698/1/MPRA_paper_94698.pdf
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    References listed on IDEAS

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    1. Günes Kamber & James Morley & Benjamin Wong, 2018. "Intuitive and Reliable Estimates of the Output Gap from a Beveridge-Nelson Filter," The Review of Economics and Statistics, MIT Press, vol. 100(3), pages 550-566, July.
    2. F. OğunC & D. Ece, 2004. "Estimating the output gap for Turkey: an unobserved components approach," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 177-182.
    3. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    4. Morley, James C., 2002. "A state-space approach to calculating the Beveridge-Nelson decomposition," Economics Letters, Elsevier, vol. 75(1), pages 123-127, March.
    5. Mehmet Fatih Ekinci & Gazi Kabas & Enes Sunel, 2013. "End-Point Bias in Trend-Cycle Decompositions : An Application to the Real Exchange Rates of Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(3), pages 61-71.
    6. Harun Alp & Fethi Ogunc & Cagri Sarikaya, 2012. "Monetary Policy and Output Gap : Mind the Composition," CBT Research Notes in Economics 1207, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Beveridge-Nelson decomposition; Beveridge-Nelson filter; Hodrick-Prescott filter; output gap; real exchange rate cycles; signal-to-noise ratio.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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