An estimation of output gap in romanian economy using the dsge approach

Abstract

In this paper I use an open economy DSGE model and estimate it for Romanian economy using Bayesian techniques. Based on estimation I derive a smoothed estimation of the output gap. I compare the results with those from standard procedures to estimate the output gap, the Hodrick Prescott filter, the production function and an unobserved components model. The results show that the DSGE approach can give a better picture of the output gap and it is more consistent with the dynamics of Romanian economy.