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Estimating potential output for New Zealand : a structural VAR approach

Iris Claus

One of the main indicators of inflationary pressures used by the Reserve Bank of New Zealand is the output gap. A measure of potential output is obtained using a structural vector autoregression (SVAR) methodology. The assumption that movements in output are the result of cyclical shocks arising from demand-side developments, and productivity shocks arising from supply-side developments provides a set of identifying restrictions. Prior to the reforms, the New Zealand economy was in excess demand with a more prolonged and deeper recession in the early 1990s than alternative methods suggest. Evidence is provided that consumption increases in anticipation of higher future earnings.
Claus, Iris (2003). ‘Estimating potential output for New Zealand’, Applied Economics, Taylor and Francis Journals, Volume 35(7), Pages 751-760, DOI: