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Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts”
Author:
Mr. Helge Berger
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,
Mr. Thomas Dowling
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Mr. Sergi Lanau
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Mr. Mico Mrkaic
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Mr. Pau Rabanal
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Marzie Taheri Sanjani
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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 233
Language:
English
Publication Date:
09 Nov 2015
DOI:
https://doi.org/10.5089/9781513503271.001
ISBN:
9781513503271
ISSN:
1018-5941
Pages:
33
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
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2015: Issue 233