Embedding Liquidity Information in Estimating Potential Output

Stefano Scalone ()

No 20/2014, Working Papers from University of Verona, Department of Economics

Abstract: This paper analyzes and extends the original study by Borio (2013), which includes proxies for the financial cycle in the process for estimating potential output. We extend the estimation to more countries (USA, UK, Spain, Italy, France, Austria, Netherlands and Switzerland) to check the robustness of the original method, and propose short-term debt as a new proxy for liquidity. We confirm that "finance neutral" measures of potential output are more reliable even though the original proxies are not particularly robust across countries, and that including liquidity information in the estimation process (whose analysis is conducted for United States, Australia and Canada) leads to better estimates, that are significant in all of the countries we analyze.

Keywords: Potential output; output gap; financial cycle; liquidity; monetary policy. (search for similar items in EconPapers)
JEL-codes: C11 C32 E10 E60 (search for similar items in EconPapers)
Pages: 29
Date: 2014-12
New Economics Papers: this item is included in nep-mac
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