Potential Output in DSGE Models
49 Pages Posted: 7 Jun 2011
Date Written: May 26, 2011
In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures.
Keywords: potential output, simulation and forecasting models, monetary policy
JEL Classification: E32, E37, E52
Suggested Citation: Suggested Citation