The impact of the macroeconomic hypothesis on the estimation of potential output using a multivariate Hodrick and Prescott filter: the case of the euro-zone - Products Statistical working papers

The paper proposes to apply the multivariate Hodrick-Prescott (HPMV) filter to the estimation of the Euro area output gap. It investigates the impact of using alternative economic relationships on the output gap estimates of the Euro area. The comparison with the univariate HP filter shows that this can significantly modify the appreciation of the output gap level of the Euro area in some specific periods. The paper also proposes to estimate the HPMV models with the methodology adopted for the estimation of state-space models. This strategy provides an alternative to the calibration of the parameters and allows to assess the reliability of the HPMV output gap estimates. Estimated weights associated to the economic relationships in the optimisation program of the HPMV are generally coherent with the calibrated values usually retained. The assessment of the reliability of the alternative output gaps and of the revision properties shows a substantial superiority of some HPMV models over the univariate HP filter. Finally, integrating macro-economic information improves generally the accuracy of the inflation forecasts.