In this paper, we calculate the potential output and the output gap using a Bayesian-estimated DSGE model of Japan’s economy. For bridging the gap with conventional measures, we define our measure of potential output as a component of the efficient output generated only by persistent growth rate shocks. Our potential growth displays a high degree of smoothness and moves closely with conventional measures. Moreover, the output gap from our measure of potential output shows better forecasting performance for inflation—in particular, at short horizons—than other measures of output gap.
|Number of pages||32|
|Journal||International Journal of Central Banking|
|Publication status||Published - 2016 Mar|
ASJC Scopus subject areas
- Economics and Econometrics