Estimating Malaysia's Output Gap: Have We Closed the Gap?

The Singapore Economic Review, Vol. 64, No. 3 (2019) 647–674, DOI: 10.1142/S0217590817500217

Posted: 24 Jun 2019

See all articles by Nur Ain Shahrier

Nur Ain Shahrier

Sunway University - Department of Economics and Finance

Lay Lian Chuah

The World Bank

Date Written: June 1, 2019

Abstract

The concepts of potential output and output gap are central to the policymakers’ analytical work in providing guidance to policy decisions. This paper presents three different estimation approaches for the Malaysian economy, namely, the univariate, multivariate and structural models. While the multivariate and structural models are mainly underpinned by theory and captured the concept of potential output better, most policymakers still maintain a suite of models to preserve diversity. Diversity provides a greater scope for cross-checking the robustness of results. The paper attempts to contribute by first, providing a critical assessment of the different models in estimating potential output and the output gap, and, second, the usefulness of each models in terms of assessing the drivers of future potential output, predicting price trends and identifying sources of inflation in the economy.

Keywords: Output gap; multivariate filter; structural VAR; inflation and prices; productivity

JEL Classification: C54; E31; E52; E58

Suggested Citation

Shahrier, Nur Ain and Chuah, Lay Lian, Estimating Malaysia's Output Gap: Have We Closed the Gap? (June 1, 2019). The Singapore Economic Review, Vol. 64, No. 3 (2019) 647–674, DOI: 10.1142/S0217590817500217, Available at SSRN: https://ssrn.com/abstract=3400508

Nur Ain Shahrier

Sunway University - Department of Economics and Finance ( email )

Malaysia

Lay Lian Chuah (Contact Author)

The World Bank ( email )

Washington, DC 20433
United States

HOME PAGE: http://www.worldbank.org/en/about/people/l/lay-lian-chuah

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