The Impact of Financial Factors on the Output Gap and Estimates of Potential Output Growth

Jesus Felipe, Noli R. Sotocinal, Connie Bayudan-Dacuycuy
2015 Social Science Research Network  
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more » ... bedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We are indebted to Piti Disyatat of the Bank of Thailand and Mikael Juselius of the Bank of Finland for sharing with us the Matlab code of the method explained in Borio, Disyatat, and Juselius (2013) and for clarifying questions on the methodology. Nevertheless, we are solely responsible for any errors. on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness. ABSTRACT v I. ABSTRACT The literature on the finance-growth nexus highlights the importance of the financial cycle for the estimation of potential output of an economy. We estimate potential output growth for the G-5 countries, as well as for 10 high-and middle-income Asian economies, using a multivariate model that includes financial factors. We find that the latter have a positive and statistically significant effect on the output gap of the G-5 and high-income Asian economies, but not on that of the middle-income Asian economies. We also find that average potential growth of the economies included in the study is lower in
doi:10.2139/ssrn.2708824 fatcat:mu2zkuwoo5bjxi7qe5znhgcywy