Work detail

Potential Output, Output Gap and Great Recession in the Eurozone

Author: Mgr. Ladislav Habiňák
Year: 2015 - summer
Leaders: PhDr. Jaromír Baxa Ph.D.
Work type: Economic Theory
Language: English
Pages: 99
Awards and prizes:
Abstract: The thesis regarding output gap estimation is divided into two sections. The first part evaluates the latent
potential output of euro area since 1998. The emphasis is put on the inquiry of usefulness of such
estimates. The main findings resulting from this analysis are that, while ex-post assessment of potential
output can serve as an effective tool for description of economy's behaviour in the past, the estimates
evaluated in real-time are surrounded by huge amount of uncertainty which causes them to be of low
reliability. For example, when searching for a structural break in the development of potential output,
estimates of all models lay in one year range suggesting it to happen approximately at the end of 2007.
On the other hand, the directions of output gaps evaluated at the end of real time data vintages were the
same only 60% times. The second part of the thesis concerns with applicability of output gap estimates
to inflation forecasting. The results show very little or no added value of such predictive modelling as
autoregressive models of inflation perform comparable or significantly better forecasts for the euro area
in medium and short term




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