A Multivariate Unobserved Components Model to Estimate Potential Output in the Euro Area: A Production Function Based Approach

Abstract

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

Untitled

“…The fourth approach is a combination of the second and third approaches and is the most complex of all the mentioned methods. In this paper, we use the multivariate unobserved components model developed as part of the ECB's Working Group on Forecasting, which was described in detail by Tóth (2021). The advantage of this model is that it contains an economic structure similar to that in production function method, but also retains the possibility of growth accounting.…”

“…Data sourcesThe structure of the multivariate unobserved components model used in this paper was described in detail byTóth (2021). It is a state-space model based on the production function and on some well-known economic relations such as Okun's law and the Phillips curve (the latter can be turned on or off arbitrarily).…”

A reconstruction of the time series of global technology from 5500 BC to the 2000s

“…Theoretically, this implies that the neoclassical growth model still retains the structure described in section 3.1, with the clarification that both technology and per capita GDP are I(2), and naturally, their growth rates are I(1). Authors who explicitly model GDP as an I(2) process within the state space models class include Clark (1987), Harvey andJaeger (1993), andTóth (2021). Importantly, this result does not impact my discussion, which simply aims to identify a connection between the millennia-long technology series and the per capita output series to assess the adequacy of its reconstruction.…”

Estimating the Euro Area Output Gap Using Multivariate Information and Addressing the COVID-19 Pandemic

“…A more recent, but related, example isBerger and Ochsner (2022), who show that other variables, apart from the unemployment rate, are important for tracking the German output gap.2 Some examples include Camba-Mendez and Rodriguez-Palenzuela (2003),Marcellino and Musso (2011),Jarociński andLenza (2018), andTóth (2021) for the euro area and Gonzalez-Astudillo (2019) for Spain andBusetti and Caivano (2016) for Italy. ECB Working Paper Series No 2716 / August 2022…”