Potential Output and Foreign Trade in Small Open Economies

András Simon and Zsolt Darvas
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András Simon: Magyar Nemzeti Bank (at the time of writing the study)

No 2000/9, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: In open economies excess demand in the tradables sector often manfests itself in an external deficit instead of the employment gap that is applied in the usual Phillips-curve model. The inflationary pressure in this case arises from an expected or actual weakening of the exchange rate and its pass-through into prices. This phenomenon gave the idea to define an output as sustainable ('potential') if it does not rely on a permanent increase of external indebtedness. Both domestic and foreign demand shocks generate deviations of actual aoutput from the potential. Potential output for Hungary, Mexico, and Poland was estimated using the Kalman-filter.

Keywords: economic integration; I(2)- ness; Kalman-filter; output gap; transition economies. (search for similar items in EconPapers)
JEL-codes: C32 E32 F41 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2000
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2000/9

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