STRUCTURAL ESTIMATION OF THE OUTPUT GAP: A BAYESIAN DSGE APPROACH

Authors

  • YASUO HIROSE,

    1. Hirose: Economist, Bank of Japan, 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan. Phone 81-3-3279-1111, Fax 81-3-5205-2055, E-mail yasuo.hirose@boj.or.jp
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  • SAORI NAGANUMA

    1. Naganuma: Economist, Bank of Japan, 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan. Phone 81-3-3279-111, Fax 81-3-5205-2055, E-mail saori.naganuma@boj.or.jp
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    • *

      We would like to thank Michel Juillard, Seisaku Kameda, Ryo Kato, Thomas Lubik, Nobuyuki Oda, the editor Vincenzo Quadrini, Tomohiro Sugo, Kozo Ueda, two anonymous referees, an anonymous associate editor, and participants at the 14th International Conference on Computing in Economics and Finance for insightful comments and discussions. The views expressed herein are those of the authors and do not necessarily reflect those of the Bank of Japan.


Abstract

We estimate the output gap that is consistent with a standard New Keynesian dynamic stochastic general equilibrium (DSGE) model, where the output gap is defined as a deviation of output from its flexible-price equilibrium, using Bayesian methods. Our output gap illustrates the U.S. business cycles well, compared with other estimates. We find that the main source of the output gap movements is the demand shocks, but that the productivity shocks contributed to the stable output gap in the late 1990s. The robustness analysis shows that the estimated output gap is sensitive to the specification for monetary policy rules. (JEL E30, E32, C11)

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