Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/126728
Authors: 
Darvas, Zsolt M.
Simon, András
Year of Publication: 
2015
Series/Report no.: 
Bruegel Working Paper 2015/11
Abstract: 
This paper argues that the Phillips curve relationship is not sufficient to trace back the output gap, because the effect of excess demand is not symmetric across tradeable and non-tradeable sectors. In the non-tradeable sector, excess demand creates excess employment and inflation via the Phillips curve, while in the tradeable sector much of the excess demand is absorbed by the trade balance. We set up an unobserved-components model including both a Phillips curve and a current account equation to estimate 'sustainable output' for 45 countries. Our estimates for many countries differ substantially from the potential output estimates of the European Commission, IMF and OECD. [...]
Subjects: 
equilibrium current account
international trade
Kalman-filter
open economy
Phillips-curve
potential outpu
real-time data
sustainable output
state-space models
JEL: 
C32
E32
F41
Document Type: 
Working Paper
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