Estimating potential output for New Zealand : a structural VAR approach

Release date
Iris Claus
Published as
Claus, Iris (2003). ‘Estimating potential output for New Zealand’, Applied Economics, Taylor and Francis Journals, Volume 35(7), Pages 751-760, DOI:
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.