The Importance of Calculating the Potential Gross Domestic Product in the Context of the Taylor Rule

Anna Michalek ()
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Anna Michalek: Nicolaus Copernicus University in Torun

Dynamic Econometric Models, 2010, vol. 10, 131-143

Abstract: Taylor stated humorously that his rule was so easy that it could be written down on the back of a business card. The reality shows that the practical use of this type of rule implies accepting many assumptions about its final shape. The article mentions only the matter of influence of calculating the potential GDP and output gap on the empirical relevance of the Taylor rule. Two ways of calculating potential GDP were presented, i.e. the HP filter and linear trend of the current and the real GDP both seasonally adjusted (an additive model with seasonal dummies; TRAMO/SEATS procedure).

Keywords: Taylor rule; output gap. (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:cpn:umkdem:v:10:y:2010:p:131-143

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