Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185941 
Year of Publication: 
2010
Citation: 
[Journal:] Swiss Journal of Economics and Statistics [ISSN:] 2235-6282 [Volume:] 146 [Issue:] 1 [Publisher:] Springer [Place:] Heidelberg [Year:] 2010 [Pages:] 275-300
Publisher: 
Springer, Heidelberg
Abstract: 
The output gap plays an important role in the assessment and conduct of monetary policy. Most of the current literature, however, relies on filtering procedures which use ad hoc smoothness arguments for identification. Furthermore, they are subject to end-of-sample problems and do not provide estimates of the output gap based on economic theory. In contrast, our model-based approach relies on a precise definition of the natural level of output and consequently of the output gap. This paper provides, for the first time, an estimate of the output gap based on a DSGE small open economy model for Switzerland. We use Bayesian econometrics to derive an estimate of the output gap, which is then compared to some alternatives. Except for the last years, our measure of the output gap is close to zero most of the time. This suggests that price rigidities play a minor role in the propagation of the Swiss business cycle. We show that our estimate produces sensible and robust results which encourage further research.
Subjects: 
DSGE models
Bayesian econometrics
output gap
natural level of output
small open economy
JEL: 
C11
C51
E32
F41
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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