On 14 February 2019, the National Bank of Ukraine (NBU) hosted an open research seminar during which Prof. Mihnea Constantinescu, University of Amsterdam and University of Zurich, presented two research papers co-authored with Anh D. M. Nguyen, a researcher at the Bank of Lithuania.
Mr. Mihnea Constantinescu spoke on the key findings of two papers that propose a new methodology for the estimation of real and financial gaps:
- A Century of Gaps, which looks into the role of financial information in the estimation of the US output gap over more than a century
- Unemployment or Credit: Which One Holds the Potential? Results for a Small Open Economy with a Low Degree of Financialization, which explores the importance of financial information in a small open economy.
The studies investigate the performance of output gap estimation using annual US data for 1870–2013. They expand the original multivariate unobserved component model to allow financial variables to have a time-varying impact in the estimation of potential output and the associated gap.
The findings suggest that growth in real lending to the non-financial private sector is a financial variable that carries most of the information necessary for the estimation of the output gap. At the same time, the sensitivity of the output gap to the growth in real lending is time-varying and has been increasing since the beginning of the 1990s. The researchers have also showed that ignoring the financial variables severely distorts the level of potential output in the post-crisis period following 2007.
Mr. Mihnea Constantinescu also notes that the inclusion of unemployment into the model substantially improves the estimates of the output gap. Moreover, once information about unemployment is accounted for, adding information about lending does not substantially alter the estimates of the output gap in the case of a small open economy with a low degree of financialization.
The NBU invites researchers to participate in the NBU’s research seminars to present their findings on issues related to the NBU’s activities and the operation of the financial system. Email your proposals (along with a desired seminar date, presentation materials, an executive summary, and/or draft contributions) to the NBU Research Division of the Monetary Policy and Economic Analysis Department (email: [email protected]).
The NBU launched open research seminars in July 2015. These seminars provide an opportunity to representatives of the academic and expert community, international financial institutions, other central banks, and the NBU to share their research findings and discuss them with peers.