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Wojciech Maliszewski
The paper constructs a new output gap measure for Vietnam by applying Bayesian methods to a two-equation AS-AD model, while treating the output gap as an unobservable series to be estimated together with other parameters. Model coefficients are easily interpretable, and the output gap series is consistent with a broader analysis of economic developments. Output gaps obtained from the HP detrending are subject to larger revisions than series obtained from a suitably adjusted model, and may be misleading compared to the model-based measure.
International Monetary Fund

-meaned to account for the structural brake in late 1998. In this case, potential output average growth rate was estimated to be 7.5 percent before the Asian crisis and 3.3 after it. IMF’s Global Projection Model (GPM) . This is a Bayesian model in five stochastic behavioral equations. It estimates an output gap equation, an inflation equation, an interest rate equation, an expected real exchange rate equation, and a dynamic Okun’s law equation. 3 The model estimates an average growth rate for potential output of 3.7 percent for the period 2001–09. Figure 5

International Monetary Fund. Western Hemisphere Dept.

the foreign countries to which economy i exports. For the U.S. output gap equation, we take the original specification of the GPM, which includes a financial variable (Bank Lending Tightening, BLT) among its determinants. 9 The unemployment gap ( u ) is U it = α i , 1 U it ⁢ −   1 + α i , 2 y it ⁢ −   1 +   ε i , t u ( 2 ) This is a dynamic

International Monetary Fund

stylized distribution chain - import, production, and consumption - for goods and services. In addition, the model controls for oil prices by including an oil price equation (in U.S. dollars); fluctuations in the output gap by including an output gap equation; and for the exchange rate. The ordering of the variables determines the sequence in which the different shocks-oil, output gap, exchange rate, import-price inflation, producer price inflation, and consumer inflation - are transmitted at time t through the system. In this model, oil price and output gap shocks are

International Monetary Fund

, the model helps organize policy analysis by pointing to the essential linkages between economic variables and policy actions, and by providing quantitative projections of those variables and policies. B. The Model 92. The model consists essentially of four equations: (i) an aggregate demand or output gap equation (IS curve) relating real activity to expected and past real activ