Estimating Potential Output: A Semi-Structural Approach

Reserve Bank of New Zealand Discussion Paper No. G97/9

18 Pages Posted: 10 Nov 2003

See all articles by Ben Hunt

Ben Hunt

International Monetary Fund (IMF) - Research Department

Paul Conway

WESTPAC Institutional Bank - Economic Team

Date Written: December 1997

Abstract

As part of the new macroeconomic modelling project at the Reserve Bank of New Zealand, considerable effort has been directed towards constructing an historical estimate of the productive capacity of the New Zealand economy. The technique documented in this paper augments the stochastic-trend estimation approach of the Hodrick-Prescott (1997) filter with information from broad macroeconomic relationships. This strategy is designed to improve the accuracy with which the filter identifies supply (trend) and demand (cyclical) disturbances in New Zealand real output data. The evolution of inflation over the historical period is now more highly correlated with the estimated demand cycles. Further, the conditioning information improves the updating properties of the estimation technique, relative to the Hodrick-Prescott filter.

Suggested Citation

Hunt, Benjamin and Conway, Paul, Estimating Potential Output: A Semi-Structural Approach (December 1997). Reserve Bank of New Zealand Discussion Paper No. G97/9, Available at SSRN: https://ssrn.com/abstract=321783 or http://dx.doi.org/10.2139/ssrn.321783

Benjamin Hunt (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Paul Conway

WESTPAC Institutional Bank - Economic Team ( email )

PO Box 691
Wellington
New Zealand
(644) 381-1414 (Phone)

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