Estimation of output gap and monetary policy: Turkey 2002-2014

The notion, output gap, indicating the difference between the real output and potential output, is important for calculating the inflationary pressure. As the main target of Central Bank is to ensure the price stability, to estimate the output gap with a minimum error is crucial for the efficiancy of the monetary policy. In our study we estimated the output gap for Turkey based on 2002-2014 by using 4 different methods. Two of our methods to estimate is two of the statistical methods, Linear Trend Model and Hodrick-Presscot (HP) Filter model. Other two methods are those estimate models, integrated with economic relations suggested by economic theory. Within those estimation techniques in our study we used Multivariate Structural Model and Structural Autoregresive (SVAR) models. We detected the SVAR method as the best method that can result output gap values to describe inflation. However we also found HP filtering method as the second best method after SVAR. Key Words: Output Gap, Potential GDP, HP Filter, SVAR Model, Linear Trend Model, Multivariate Structural Model