Estimating Potential Output and the Output Gap in Slovakia

This paper estimates potential output and the output gap for Slovakia, which has enjoyed rapid growth with few signs of economic overheating in recent years. The paper applies two broad sets of approaches: conventional methods, represented by a statistical method and a production function approach; and a multivariate (MV) Kalman filter method. The MV Kalman filter method produces estimates of excess demand that portray the situation in recent years in Slovakia much more sensibly than do the conventional methods because it can use more information to condition the paths of potential output.