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Europe > Ireland

You are looking at 1 - 2 of 2 items for :

  • Type: Journal Issue x
  • Financial Economics x
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Cover IMF Working Papers
Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts”
Mr. Helge Berger
,
Mr. Thomas Dowling
,
Mr. Sergi Lanau
,
Mr. Mico Mrkaic
,
Mr. Pau Rabanal
, and
Marzie Taheri Sanjani
Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate when financial “booms and busts” are driving the real economy. This paper uses a simple multivariate filtering approach to illustrate the role financial variables play in driving potential or sustainable output. The results suggest that it moves more steadily during financial “boom and bust” periods than implied by conventional HP filter estimates, which tend to more closely follow actual GDP. A two-region, multisector New Keynesian DSGE model with financial frictions sheds light on the economic forces that could be behind the results obtained from the filter. This has important implications for policymakers.
Keywords:
WP; MVF output gap; boom and bust; Spain output gaps estimate; house price; MVF-implied output gap; Spain output gaps from a MVF Model; Potential output; Output gap; Credit; housing price movement; Housing prices; Financial frictions; Global
Cover IMF Working Papers
Output Gap in Presence of Financial Frictions and Monetary Policy Trade-offs
Francesco Furlanetto
,
Paolo Gelain
, and
Marzie Taheri Sanjani
The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
Keywords:
WP; monetary policy; Financial Frictions; Potential output; Optimal Monetary Policy; Output Gap; output gap stabilization; computing output gap; wage inflation; mark-up shock; asset price inflation; efficient frontier; output gap dynamics; monetary policy authority; implied output gaps; output gap in presence; inflation target shock; monetary policy shock; Wages; Inflation