The Structural Budget Balance: The IMF’s Methodology

Abstract

Hagemann, describing the IMF’s methodology to calculate the output gap, shows that no standardised procedure is imposed for all countries, though the production function approach tends to dominate. For some countries, the estimates of the IMF are based on direct HP filtering. The HP filter is also used at various stages in the OECD’s method, based on a production function; this tends to reduce the differences with the results obtained by direct application of the filter.