Output Gap Estimates for Finland with Multivariate Filters

Abstract

Evaluation of appropriateness of fiscal policy is partly based on information on cyclical situataion of the economy. While the distinction between cyclical fluctuations and structural changes in economy is based on estimates of potential output and its growth, these estimates are also affected by forecast developments. This discussion paper introduces a model that provides up-to-date information on cyclical output and unemployment in Finland based solely on quarterly data. In recent literature, the output gap is argued to be affected by channges in priveate sector credit and debt service burden. We extend our baseline model to test this hypothesis in Finnish economy.