MEASURING OUTPUT POTENTIAL AND OUTPUT GAP OF ALBANIA
Journal Title: Revista Universitara de Sociologie - Year 2019, Vol 0, Issue 1
Abstract
This paper uses HP filter and production function of the Cobb-Douglas form to measure and compare output potential and output gap. We find that Albania’s economy is performing near or above potential. Both the univariate and the multivariate ways result in similar results. We use a two-sided smoothing lambda of 100 for the HP filter. The results lead us to conclude that the policy interest rate of the Central bank has not been as low to stimulate economic growth as we have been led to believe. Central Banks measures of output potential of 4% seem to be higher than the recent data suggests. More studies should be performed to measure neutral interest rate to conclusively say that a lower policy interest rate should be pursued by the central bank.
Authors and Affiliations
Altin ZEFI
Keywords
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