Estimating New Zealand's Output Gap Using a Small Macro Model
Published 16 Jul 2013
Author: Kam Leong Szeto
Abstract
The Treasury has been testing the assumptions on the potential growth rate of the New Zealand economy. In this paper, we estimate a small macro model using Bayesian techniques, which allows us to assess the level of uncertainty of the estimates of the output gap. The model is based on the work of Benes et al. (2010) with some modifications reflecting New Zealand economic conditions. Although this new technique does not reduce the uncertainty in measures of potential output as indicated by large confidence bands for the estimates, it provides us a useful tool with an economic framework for measuring potential output.
Contents
Acknowledgements
I would like to thank Michael Ryan, Peter Mawson, Jamie Murray,
Patrick Conway, Michael Reddell, Thora Helgadottir, Graeme Wells,
Kirdan Lees and Brigid Monagel for helpful comments on an earlier
version of this paper.
Disclaimer
The views, opinions, findings, and conclusions or recommendations
expressed in this Working Paper are strictly those of the author(s).
They do not necessarily reflect the views of the New Zealand
Treasury or the New Zealand Government. The New Zealand
Treasury and the New Zealand Government take no responsibility for
any errors or omissions in, or for the correctness of, the information
contained in these working papers. The paper is presented not as
policy, but with a view to inform and stimulate wider debate.
