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Sarfaraz Ali Shah Syed
 
''How reliable are the output gap measures: a statistical and structural investigation for france''
( 2011, Vol. 31 No.4 )
 
 
This paper tests the reliability of the output gap measures using both the statistical and the structural methodologies. We use quarterly GDP data for the case of France over the period of 1960:Q1 – 2010:Q4. A number of statistical methods including Linear Detrending,Moving averages, Hodrick & Prescott filter, Baxter-King detrending and the unobserved Component method (Kalman filter); and some structural approaches including Production function approach, and the Structural Autoregression (SVAR) with some augmentation on our part, are used to estimate the potential GDP and in turn the output gap. We find interesting results and some significant differences between the outcomes of the statistical and structural methods. Our results pose serious questions on the reliability of the output gap measures used contemporarily in various studies. We find that a change of estimation method may result in significant variations in the results of various economic models using output gap data.
 
 
Keywords: Output gap, Potential output, production function
 
Manuscript Received : Oct 05 2011 Manuscript Accepted : Oct 05 2011

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