{
  "title": "Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts”",
  "publication": "IMF Working Papers, November 9, 2015",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/steady-as-she-goes-estimating-potential-output-during-financial-booms-and-busts-43383",
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  "summary": "Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate when financial “booms and busts” are driving the real economy.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is presented as a crucial benchmark for policymakers.\n- The paper addresses difficulty in estimating potential output when financial “booms and busts” are driving the real economy.\n- Uses a simple multivariate filtering approach to illustrate the role financial variables play in driving potential or sustainable output.\n- Results suggest potential output moves more steadily during financial “boom and bust” periods than implied by conventional HP filter estimates, which tend to more closely follow actual GDP.\n- A two-region, multisector New Keynesian DSGE model with financial frictions is used to shed light on economic forces behind the filter results.\n- The findings are described as having important implications for policymakers."
    },
    {
      "heading": "Methodology and Key Findings",
      "content": "- Method: simple multivariate filtering approach (MVF) incorporating financial variables to estimate potential or sustainable output.\n- Comparative finding: MVF-implied potential output is steadier during financial “boom and bust” periods relative to estimates from the conventional HP filter.\n- Conventional HP filter estimates tend to more closely follow actual GDP, implying larger short-run fluctuations in estimated potential output during financial cycles."
    },
    {
      "heading": "Theoretical Framework",
      "content": "- Model used: two-region, multisector New Keynesian DSGE model with financial frictions.\n- Purpose of model: to illuminate economic forces that could generate the steadier potential output implied by the multivariate filter results."
    },
    {
      "heading": "Policy Implications",
      "content": "- The steadier MVF-implied potential output during financial cycles has important implications for policymakers (implicit: assessment of output gaps, cyclical policy settings, and financial-stability-informed macroeconomic policy)."
    },
    {
      "heading": "Subjects and Keywords",
      "content": "- Subjects: Credit; Economic theory; Financial frictions; Housing prices; Money; Output gap; Potential output; Prices; Production\n- Keywords: boom and bust; Credit; Financial frictions; Global; house price; housing price movement; Housing prices; MVF output gap; MVF-implied output gap; Output gap; Potential output; Spain output gaps estimate; Spain output gaps from a MVF Model; WP\n\nSource: IMF Working Paper \"Steady as She Goes—Estimating Potential Output During Financial “Booms and Busts”\", November 9, 2015.\n\n---\n\n Content in this bundle\n\n- wp15233\n  - wp15233 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp15233 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/steady-as-she-goes-estimating-potential-output-during-financial-booms-and-busts-43383"
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    "Authors: Helge Berger, Thomas Dowling, Sergi Lanau, Mico Mrkaic, Pau Rabanal, Marzie Taheri Sanjani",
    "Published: November 9, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513503271.001",
    "Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is presented as a crucial benchmark for policymakers.",
    "The paper addresses difficulty in estimating potential output when financial “booms and busts” are driving the real economy.",
    "Uses a simple multivariate filtering approach to illustrate the role financial variables play in driving potential or sustainable output.",
    "Results suggest potential output moves more steadily during financial “boom and bust” periods than implied by conventional HP filter estimates, which tend to more closely follow actual GDP.",
    "A two-region, multisector New Keynesian DSGE model with financial frictions is used to shed light on economic forces behind the filter results.",
    "The findings are described as having important implications for policymakers.",
    "Method: simple multivariate filtering approach (MVF) incorporating financial variables to estimate potential or sustainable output.",
    "Comparative finding: MVF-implied potential output is steadier during financial “boom and bust” periods relative to estimates from the conventional HP filter.",
    "Conventional HP filter estimates tend to more closely follow actual GDP, implying larger short-run fluctuations in estimated potential output during financial cycles.",
    "Model used: two-region, multisector New Keynesian DSGE model with financial frictions.",
    "Purpose of model: to illuminate economic forces that could generate the steadier potential output implied by the multivariate filter results.",
    "The steadier MVF-implied potential output during financial cycles has important implications for policymakers (implicit: assessment of output gaps, cyclical policy settings, and financial-stability-informed macroeconomic policy).",
    "Subjects: Credit; Economic theory; Financial frictions; Housing prices; Money; Output gap; Potential output; Prices; Production",
    "Keywords: boom and bust; Credit; Financial frictions; Global; house price; housing price movement; Housing prices; MVF output gap; MVF-implied output gap; Output gap; Potential output; Spain output gaps estimate; Spain output gaps from a MVF Model; WP",
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