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Structural Estimation of the Output Gap:

A Bayesian DSGE Approach for the U.S. Economy

November 2007
Yasuo Hirose*
Saori Naganuma**

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Abstract

We estimate the output gap that is consistent with a fully specified DSGE model. Given the structural parameters estimated using Bayesian methods, we estimate the output gap that is defined as a deviation of output from its flexible-price equilibrium. Our output gap illustrates the U.S. business cycles well, compared with other estimates. We find that the main source of the output gap movements is the demand shocks, but that the productivity shocks contributed to the stable output gap in the late 1990s. The robustness analysis shows that the estimated output gap is sensitive to the specification for monetary policy rules.

Keywords: Output Gap, DSGE Models, Bayesian Estimation
JEL classification: C11, C32, E31, E32

We would like to thank Michel Juillard, Seisaku Kameda, Thomas Lubik, Nobuyuki Oda, Tomohiro Sugo, Kozo Ueda, and seminar participants at the International Department for insightful comments and discussions. The views expressed herein are those of the authors and do not necessarily reflect those of the Bank of Japan.


* International Department, Bank of Japan
E-mail: yasuo.hirose@boj.or.jp
** International Department, Bank of Japan
E-mail: saori.naganuma@boj.or.jp
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