Alternative Methods Of Estimating Output Gap For Turkey

Article Information
Journal: Business and Economics Research Journal
Title of Article: Alternative Methods Of Estimating Output Gap For Turkey
Author(s): Bedriye Saraçoğlu, Özlem Yiğit, Necmettin Alpay Koçak
Volume: 5
Number: 3
Year: 2014
Page: 43-65
ISSN: 1309-2448
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.
Keywords: Output gap, Phillips curve, inflation forecast, modified HP filter, SVAR
JEL Classification: C32, C36, E31, E32 Full Text