[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/rbz/wpaper/11051.html
   My bibliography  Save this paper

The inherent uncertainties in output gap estimation a South African perspective

Author

Listed:
  • Cobus Vermeulen
Abstract
Monetary policy actions require accurate real-time estimates of potential output and the output gap. Such estimates are, however, vulnerable to definitional uncertainty, choice of methodology and data revision. It is also not always clear whether changes in economic conditions reflect changes in actual or potential output; flawed output gap estimates could in turn lead to an inappropriate policy stance. This paper compares the SARBs current approach to estimating potential output and the output gap to the empirical literature. New estimates of the output gap and potential growth are also presented, concentrating on the impact of the COVID-19 pandemic on economic activity. Consistent with existing literature, these estimates detect a chronically negative annual output gap since 2009, which only closed briefly in 2018, and a steady decline in the potential growth rate since 2010. The COVID-19 shock has likely exacerbated existing structural economic weaknesses and led to massive negative output gaps, notably during 2020, and continuing into 2021.

Suggested Citation

  • Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.
    • Handle: RePEc:rbz:wpaper:11051
    as

    Download full text from publisher

    File URL: https://www.resbank.co.za/content/dam/sarb/publications/working-papers/2023/WP%202308.pdf
    File Function: Revision
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-368, July.
    3. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2007. "Identifying aggregate supply and demand shocks in South Africa," Working Papers 11/2007, Stellenbosch University, Department of Economics.
    4. Andrea F.M. Martinangeli & Biljana Meiske, 2021. "The influence premium of monetary status," Working Papers tax-mpg-rps-2021-10, Max Planck Institute for Tax Law and Public Finance.
    5. Claudio BorioBy & Piti Disyatat & Mikael Juselius, 2017. "Rethinking potential output: embedding information about the financial cycle," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 655-677.
    6. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
    7. Johannes Hermanus Kemp, 2015. "Measuring Potential Output for the South African Economy: Embedding Information About the Financial Cycle," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 549-568, December.
    8. Kuhn, Moritz & Bartscher, Alina & Schularick, Moritz & Wachtel, Paul, 2021. "Monetary policy and racial inequality," CEPR Discussion Papers 15734, C.E.P.R. Discussion Papers.
    9. Ben Smit & Le Roux Burrows, 2002. "Estimating potential output and output gaps for the South African economy," Working Papers 05/2002, Stellenbosch University, Department of Economics.
    10. Andersson, Malin & Szörfi, Béla & Tóth, Máté & Zorell, Nico, 2018. "Potential output in the post-crisis period," Economic Bulletin Articles, European Central Bank, vol. 7.
    11. ., 2017. "US monetary policy and the global crude oil market," Chapters, in: Monetary Policy and Crude Oil, chapter 3, pages 109-129, Edward Elgar Publishing.
    12. Byron Botha & Shaun de Jager & Franz Ruch & Rudi Steinbach, 2017. "The Quarterly Projection Model of the SARB," Working Papers 8000, South African Reserve Bank.
    13. Daan Steenkamp, 2018. "Productivity estimates for South Africa from CES production functions," Working Papers 8937, South African Reserve Bank.
    14. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    15. Byron Botha & Franz Ruch & Rudi Steinbach, 2018. "Shortlived supply shocks to potential growth," Working Papers 8605, South African Reserve Bank.
    16. repec:imf:imfdps:2011/005 is not listed on IDEAS
    17. Melolinna, Marko & Tóth, Máté, 2016. "Output gaps, inflation and financial cycles in the United Kingdom," Bank of England working papers 585, Bank of England.
    18. J. Kemp & B. Smit, 2016. "Estimating and Explaining Changes in Potential Growth in South Africa," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 40(3), pages 21-38, December.
    19. N Ehlers & L Mboji & M M Smal, 2013. "The pace of potential output growth in the South African economy," Working Papers 5600, South African Reserve Bank.
    20. Stephan Kohns, 2017. "Monetary Policy and Financial Stability," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(1), pages 17-18, 04.
    21. repec:ces:ifodic:v:15:y:2017:i:1:p:19307486 is not listed on IDEAS
    22. Bodnár, Katalin & Le Roux, Julien & Lopez-Garcia, Paloma & Szörfi, Béla, 2020. "The impact of COVID-19 on potential output in the euro area," Economic Bulletin Articles, European Central Bank, vol. 7.
    23. Andreas Fagereng & Magnus A. H. Gulbrandsen & Martin B. Holm & Gisle J. Natvik, 2021. "How does monetary policy affect household indebtedness?," Working Paper 2021/5, Norges Bank.
    24. Mr. Jiaqian Chen & Lucyna Gornicka, 2020. "Measuring Output Gap: Is It Worth Your Time?," IMF Working Papers 2020/024, International Monetary Fund.
    25. Claudio Borio & Piti Disyatat & Mikael Juselius, 2014. "A parsimonious approach to incorporating economic information in measures of potential output," BIS Working Papers 442, Bank for International Settlements.
    26. Johannes W. Fedderke & Daniel K. Mengisteab, 2017. "Estimating South Africa's Output Gap and Potential Growth Rate," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 161-177, June.
    27. Patrick Blagrave & Mr. Roberto Garcia-Saltos & Mr. Douglas Laxton & Fan Zhang, 2015. "A Simple Multivariate Filter for Estimating Potential Output," IMF Working Papers 2015/079, International Monetary Fund.
    28. ., 2021. "Fiscal, monetary, and exchange rate policies," Chapters, in: The Political Economy of Iraq, chapter 14, pages 273-296, Edward Elgar Publishing.
    29. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    30. Ali Alichi, 2015. "A New Methodology for Estimating the Output Gap in the United States," IMF Working Papers 2015/144, International Monetary Fund.
    31. Vetlov, Igor & Pisani, Massimiliano & Hlédik, Tibor & Jonsson, Magnus & Kucsera, Henrik, 2011. "Potential output in DSGE models," Working Paper Series 1351, European Central Bank.
    32. Rochelle M. Edge & Jeremy B. Rudd, 2016. "Real-Time Properties of the Federal Reserve's Output Gap," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 785-791, October.
    33. Leon du Toit, 2008. "Optimal HP filtering for South Africa," Working Papers 07/2008, Stellenbosch University, Department of Economics.
    34. ., 2017. "Monetary policy and crude oil: a theoretical analysis," Chapters, in: Monetary Policy and Crude Oil, chapter 2, pages 26-106, Edward Elgar Publishing.
    35. Byron Botha & Eric Schaling, 2020. "Commodity Prices and Policy Stabilisation in South Africa," Working Papers 10225, South African Reserve Bank.
    36. Fabio Scacciavillani & Phillip Swagel, 2002. "Measures of potential output: an application to Israel," Applied Economics, Taylor & Francis Journals, vol. 34(8), pages 945-957.
    37. Tim Congdon, 2008. "Two Concepts of the Output Gap," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 9(1), pages 147-175, January.
    38. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    39. Enrique Alberola-Ila & Rocío Gondo & Marco Jacopo Lombardi & Diego Urbina, 2016. "Output gaps and policy stabilisation in Latin America: the effect of commodity and capital flow cycles," BIS Working Papers 568, Bank for International Settlements.
    40. C. B. Du Toit & Renee´ Van Eyden & Marc Ground, 2006. "Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective," Working Papers 200603, University of Pretoria, Department of Economics.
    41. Stan du Plessis & Ben Smit & Federico Sturzenegger, 2008. "Identifying Aggregate Supply and Demand Shocks in South Africa †," Journal of African Economies, Centre for the Study of African Economies, vol. 17(5), pages 765-793, November.
    42. Vafa Anvari & Nelne Ehlers & Rudi Steinbach, 2014. "A semistructural approach to estimate South Africas potential output," Working Papers 6504, South African Reserve Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes W. Fedderke, 2022. "Identifying steady‐state growth and inflation in the South African economy, 1960–2020," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 279-300, September.
    2. Byron Botha & Eric Schaling, 2020. "Commodity Prices and Policy Stabilisation in South Africa," Working Papers 10225, South African Reserve Bank.
    3. Johannes Hermanus Kemp, 2015. "Measuring Potential Output for the South African Economy: Embedding Information About the Financial Cycle," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 549-568, December.
    4. Byron Botha & Franz Ruch & Rudi Steinbach, 2018. "Shortlived supply shocks to potential growth," Working Papers 8605, South African Reserve Bank.
    5. Kátay Gábor & Kerdelhué Lisa & Lequien Matthieu, 2020. "Semi-Structural VAR and Unobserved Components Models to Estimate Finance-Neutral Output Gap," Working papers 791, Banque de France.
    6. Johannes W. Fedderke & Daniel K. Mengisteab, 2017. "Estimating South Africa's Output Gap and Potential Growth Rate," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 161-177, June.
    7. Ali Alichi & Olivier Bizimana & Silvia Domit & Emilio Fernández Corugedo & Mr. Douglas Laxton & Kadir Tanyeri & Hou Wang & Fan Zhang, 2015. "Multivariate Filter Estimation of Potential Output for the Euro Area and the United States," IMF Working Papers 2015/253, International Monetary Fund.
    8. Mr. Alvar Kangur & Koralai Kirabaeva & Jean-Marc Natal & Simon Voigts, 2019. "How Informative Are Real Time Output Gap Estimates in Europe?," IMF Working Papers 2019/200, International Monetary Fund.
    9. Mellár, Tamás & Németh, Kristóf, 2018. "A kibocsátási rés becslése többváltozós állapottérmodellekben. Szuperhiszterézis és további empirikus eredmények [Estimating output gap in multivariate state space models. Super-hysteresis and furt," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 557-591.
    10. Johannes W. Fedderke, 2022. "Identifying supply and demand shocks in the South African Economy, 1960–2020," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 349-389, September.
    11. Ali Alichi, 2015. "A New Methodology for Estimating the Output Gap in the United States," IMF Working Papers 2015/144, International Monetary Fund.
    12. Sariola, Mikko, 2019. "An unobserved components model for Finland – Estimates of potential output and NAWRU," BoF Economics Review 2/2019, Bank of Finland.
    13. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    14. Ahsan ul Haq Satti & Wasim Shahid Malik, 2017. "The Unreliability of Output-Gap Estimates in Real Time," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(3), pages 193-219.
    15. Tania Karamisheva, 2021. "Measuring the Business Cycle in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 17-38.
    16. Mr. Andreas Billmeier, 2004. "Ghostbusting: Which Output Gap Measure Really Matters?," IMF Working Papers 2004/146, International Monetary Fund.
    17. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 310-332.
    18. Amador-Torres, J. Sebastián, 2017. "Finance-neutral potential output: An evaluation in an emerging market monetary policy context," Economic Systems, Elsevier, vol. 41(3), pages 389-407.
    19. Álvarez, Luis J. & Gómez-Loscos, Ana, 2018. "A menu on output gap estimation methods," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 827-850.
    20. Patrick Blagrave & Marika Santoro, 2016. "Estimating Potential Output in Chile: A Multivariate Filter for Mining and Non-Mining Sectors," IMF Working Papers 2016/201, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbz:wpaper:11051. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jessica VanWyk (email available below). General contact details of provider: https://edirc.repec.org/data/rbagvza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.