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Measuring Potential Growth with an Estimated DSGE Model of Japan's Economy

Takuji Fueki, Ichiro Fukunaga, Hibiki Ichiue (hichiue@gmail.com) and Toyoichiro Shirota
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Takuji Fueki: Bank of Japan

No 10-E-13, Bank of Japan Working Paper Series from Bank of Japan

Abstract: In this paper, we calculate the potential output and the output gap using a Bayesian-estimated DSGE model of Japan's economy. The model is a two-sector growth model that takes into account growth rate shocks including investment-goods sector-specific technological progress. For bridging the gap with conventional measures, we define our measure of potential output as a component of the efficient output generated only by growth rate shocks. Our potential growth displays a high degree of smoothness and moves closely with conventional measures. Moreover, the output gap from our measure of potential output has forecasting power for inflation. We analyze the sensitivity of our measure to the specifications of monetary policy rules, labor supply shocks, price and wage markup shocks, and technology shocks as well as the robustness with respect to data revisions and updates.

Keywords: Potential growth; Output gap; Dynamic stochastic general equilibrium model; Bayesian estimation; Real-time data (search for similar items in EconPapers)
JEL-codes: E32 E37 O41 O47 (search for similar items in EconPapers)
Date: 2010-12
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Citations: View citations in EconPapers (26)

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Journal Article: Measuring Potential Growth with an Estimated DSGE Model of Japan’s Economy (2016) Downloads
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