Stylised Facts from Output Gap Measures

Reserve Bank of New Zealand Discussion Paper No. DP2000/07

23 Pages Posted: 10 Nov 2003

Date Written: January 2000

Abstract

This paper compares three models of the output gap in New Zealand - the Reserve Bank of New Zealand's incumbent MV filter, estimates from a Structural VAR, and a multivariate unobserved components model - and investigates whether there are features that are consistent across the measures of the gap. Various detrending methods are used for benchmarking the output gap measures, including a linear trend, a fourth difference filter, a band-pass filter, the Hodrick-Prescott filter, an "optimal" procedure, and a nonparametric estimator of permanent trend. The estimates of the gap are examined to see how they compare as to the lengths and amplitudes of cycles, whether they exhibit regular periodicity and regular shapes, whether they are symmetric in phases and severity of swings, and whether they point to the same turning points. The analysis leads to the conclusion that while different filters result in estimates of the output gap with quite different properties, the three models are generally in agreement about the historical profile of the output gap, if not its precise level. Moreover, there are signs that the models are increasingly in agreement about the level of the gap, indicating that the growth cycle is becoming more regular in the 1990s.

JEL Classification: E32

Suggested Citation

Scott, Alasdair M., Stylised Facts from Output Gap Measures (January 2000). Reserve Bank of New Zealand Discussion Paper No. DP2000/07, Available at SSRN: https://ssrn.com/abstract=348182 or http://dx.doi.org/10.2139/ssrn.348182

Alasdair M. Scott (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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