The Impact of Financial Factors on the Output Gap and Estimates of Potential Output Growth

Felipe, Jesus; Sotocinal, Noli; Bayudan-Dacuycuy, Connie | October 2015
Abstract
The authors examine the impact of financial factors on estimates of the output gap and potential output growth for the G-5 and 10 high- and middle-income Asian economies. Using a state-space model of the output gap with exogenously determined financial factors as regressors, they employ Bayesian methods to estimate the model parameters, and subsequently employ the Kalman filter to obtain estimates of potential output and potential output growth. They find that financial factors have positive and statistically significant effects on the output gap of the G-5 and high-income economies in Asia, but do not affect those of middleincome Asian economies. By accounting for the effects of financial factors on the output gap, the authors obtain finance-neutral estimates of potential output growth.
Citation
Felipe, Jesus; Sotocinal, Noli; Bayudan-Dacuycuy, Connie. 2015. The Impact of Financial Factors on the Output Gap and Estimates of Potential Output Growth. © Asian Development Bank. http://hdl.handle.net/11540/5201. License: CC BY 3.0 IGO.
ISSN
2313-6537 (Print); 2313-6545 (e-ISSN)
Keywords
Development
Finance
Development Challenges
Development Issues
Development Problems
Crisis
Economic Recession
International Financial Market
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Citable URI
http://hdl.handle.net/11540/5201
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