Estimating potential output and output gap through non-structural approaches: An application to Iran

Abstract

This paper discusses the different and formal approaches of estimation of potential output and output gap through modern time series filtering. The estimation of potential output and output gap is used in different areas such as non-inflationary steady state growth, and shows that adapting different approaches leads to different results. Estimation also helps economists and economic policymakers to evaluate macroeconomic policies and helps them to decide in what conditions the aggregate demand policies should be contractional or expansionary. Finally, this paper presents the estimation results of different approaches using Iran's seasonal data. Here, we preferably have used three approaches, namely, univariate or multivariate Beveridge-Nelson decomposition and Wavelet method. Key words: Potential output, Beveridge-Nelson decomposition, wavelet filter, Iran.