Output Gap estimation, estimation uncertainty and its effect on policy rules

Julio-Román, Juan Manuel; Gómez-Pineda, Javier G.

Output Gap estimation, estimation uncertainty and its effect on policy rules

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Revista Ensayos Sobre Política Económica; Vol. 17. No. 34. Diciembre, 1998. Pág.: 89-117.

Date published

1998-12-01

Date

1998-12

Authors

Julio-Román, Juan Manuel
Gómez-Pineda, Javier G.

ISSN

0120-4483

Document language

eng

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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

The authors propose a short run model for the monetary transmission mechanism in which the output gap is model as an unobserved variable. By estimating this model using maximum likelihood on a Kalman Filter, the authors find an estimate of the unobserved output gap as well as its estimation uncertainty. The performance of monetary rules is studied both with certainty on the output gap values as well as with estimation uncertainty.