Measurement Method Improvement of China’s Potential Output: Based on the Synthetically Evaluation of Fuzzy Entropy

Abstract

Potential output and output gap are important reference variables in economy cycle fluctuation. According to the situation, that measurement methods of potential output are numerous and independent, this article establishes the improvement method based on synthetically evaluation of fuzzy entropy. This method could produce discourse domain for different measurement results, calculate membership function value with the method of local replacement iteration, and determine the best time series of output gap. Empirical results shows, that the output gap of 1992Q1-2013Q3, which is obtained by the improvement method, is better than the estimated values of HP filtering method, production function method, and Vector auto-regression in terms of predictive ability of inflation, the agreement degree of factual economic cycle, and stability.