The Output Gap: The Case Of Lithuania
...this issue has not been explored deeply in Lithuania so far. The thesis features a group of potential output estimation methods (linear de-trending, segmented linear de-trending, Hodrick-Prescott filter and production function) giving measures of the output gap in the Lithuanian economy for the years 1995-2005. Historically, different measures tend to co-move and indicate the same sign of the output gap. The Russian crisis stands out as the most influential event during the whole period in terms of output gap and potential GDP development. Besides, the thesis does not find evidence of significant positive relationship between the output gap and inflation in Lithuania. Finally, the thesis illustrates problems in making precise real-time gap estimations and thus ends with a range of possible values for the current state of the output gap.
Keywords: output gap, potential output.
Table of contents
COPYRIGHT DECLARATION I
ACKNOWLEDGMENTS II
ABSTRACT III
LIST OF TABLES V
LIST OF FIGURES VI
1 INTRODUCTION 1
2 LITERATURE REVIEW 3
3 ESTIMATION METHODS 5
3.1 LINEAR DE-TRENDING: SIMPLE LINEAR TREND AND SEGMENTED TREND 6
3.2 HODRICK-PRESCOTT FILTER 7
3.3 PRODUCTION FUNCTION APPROACH 8
4 DATA 11
5 EMPIRICAL FINDINGS 12
5.1 SIMPLE LINEAR METHOD: 12
5.2 SEGMENTED LINEAR TREND METHOD: 13
5.3 HODRICK-PRESCOTT FILTER 15
5.4 PRODUCTION FUNCTION 16
6 DISCUSSION OF THE RESULTS 19
6.1 CORRELATION AND CONCORDANCE STATISTICS 20
6.2 THE OUTPUT GAP AND INFLATION 22
7 HISTORICAL DEVELOPMENT OF POTENTIAL OUTPUT AND THE OUTPUT GAP 24
8 THE END-SAMPLE PROBLEM AND SOME INSIGHTS INTO THE CURRENT SITUATION 25
9 CONCLUSIONS 28
WORKS CITED 30
10 APPENDICES 33
10.1 APPENDIX 1 33
10.2 APPENDIX 2 34
10.3 APPENDIX 3 35
10.4 APPENDIX 4 36
10.5 APPENDIX 5 37
10.6 APPENDIX 6 38
List of tables
TABLE 5.1. TESTS FOR UNIT ROOT IN REAL LOGARITHMIC GDP SERIES 14...
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