Intuitive and Reliable Estimates of Output Gap and Real Exchange Rate Cycles for Turkey

Ekinci, Mehmet Fatih (2019): Intuitive and Reliable Estimates of Output Gap and Real Exchange Rate Cycles for Turkey.

Abstract

Decomposing time series data into trend and cyclical components is among the top priorities for policy maker institutions. Comparing with the unrestricted Beveridge-Nelson decomposition and Hodrick-Prescott filter, we implement a restricted Beveridge-Nelson filter developed by Kamber et. al. (2018) which limits the volatility of trend component. Utilizing the quarterly real GDP series and monthly real exchange rate data for Turkey, we find that Beveridge-Nelson filter provides more persistent and larger cyclical values than Beveridge-Nelson decomposition. Taking the output gap estimates of Central Bank of Turkey as a benchmark, our results indicate that Beveridge-Nelson filter method yields more sensible results. We also develop a measure to make an assessment on the end-point bias. Our results show that restricted Beveridge-Nelson filter performs better than Hodrick-Prescott filter regarding the magnitude of end point bias.

• Item Type: MPRA Paper
• Language: English
• Keywords: Beveridge-Nelson decomposition, Beveridge-Nelson filter, Hodrick-Prescott filter, output gap, real exchange rate cycles, signal-to-noise ratio.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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