New Model Predicts Japan's Economic Growth and Inflation with Accuracy
The article measures Japan's potential growth and output gap using a model that considers growth rate shocks and technological progress in different sectors. The researchers define potential output as the efficient output generated by growth rate shocks only. Their measure of potential growth is smooth and closely aligns with conventional measures. The output gap from their measure can predict inflation. The study also looks at how different factors like monetary policy rules and technology shocks affect their measure of potential output.