Combining Hodrick-Prescott Filtering with a Production Function Approach to Estimate Output Gap

Marta Areosa

No 172, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The proposed methodology combines two of the most important techniques to estimate output gap: the production function approach and the Hodrick-Prescott .ltering. Three main advantages can be derived from this method: (i) it adds some economic structure to a .filtering method, (ii) it can be easily adapted to incorporate new characteristics into the filter and (iii) it simultaneously produces estimates for potential output and its unobservable components.

Date: 2008-08
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