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A more reliable output gap that reflects policymakers' beliefs

Crawford School of Public Policy | Centre for Applied Macroeconomic Analysis

Event details

Seminar

Date & time

Monday 19 October 2015
12.00pm–1.00pm

Venue

Brindabella Theatre, Level 2, JG Crawford Building 132, Lennox Crossing, ANU

Speaker

Dr Benjamin Wong, Reverse Bank of New Zealand.

Contacts

Rossana Bastos
6125 8108

In this seminar Benjamin Wong will provide an overview of his recent paper, ‘A More Reliable Output Gap that Reflects Policymakers’ Beliefs’. When imposing a low signal-to-noise ratio on output growth, the Beveridge-Nelson decomposition is able to produce an output gap that is consistent with policymakers’ beliefs, but does not suffer the reliability problems that plague other methods that assume a similarly smooth trend.

In particular, the author shows that the output gap based on the Beveridge-Nelson decomposition using Bayesian estimation of an autoregressive model of US quarterly output growth with a dogmatic prior on the sum of the autoregressive coefficients is persistent and large in amplitude, moves closely with the NBER-dated expansions and recessions, and leads to better out-of-sample forecasts of output growth and inflation than output gaps based on a quadratic trend, the Hodrick-Prescott filter, or the bandpass filter.

Benjamin Wong is an economist at the Reserve Bank of New Zealand. He holds a PhD in Economics from the Australian National University and a Bachelor of Economics from the University of Queensland. His research interests lie in Empirical Macroeconometerics with a particular focus on the link between oil markets and the macroeconomy and detrending methodologies. He has also been a visiting researcher at the International Monetary Fund and the European Central Bank.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.

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