Potential Output in DSGE Models

49 Pages Posted: 7 Jun 2011

See all articles by Igor Vetlov

Igor Vetlov

Bank of Lithuania

Tibor Hlédik

Czech National Bank

Magnus Jonsson

Sveriges Riksbank

Kucsera Henrik

affiliation not provided to SSRN

Massimiliano Pisani

Bank of Italy

Date Written: May 26, 2011

Abstract

In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures.

Keywords: potential output, simulation and forecasting models, monetary policy

JEL Classification: E32, E37, E52

Suggested Citation

Vetlov, Igor and Hlédik, Tibor and Jonsson, Magnus and Henrik, Kucsera and Pisani, Massimiliano, Potential Output in DSGE Models (May 26, 2011). ECB Working Paper No. 1351, Available at SSRN: https://ssrn.com/abstract=1853425

Igor Vetlov (Contact Author)

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Tibor Hlédik

Czech National Bank ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Magnus Jonsson

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

HOME PAGE: http://www.riksbank.com/research

Kucsera Henrik

affiliation not provided to SSRN

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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