Proceedings of the 5th Economic & Finance Conference, Miami

CALCULATION OF CAPITAL-TO-OUTPUT RATIO IN A PRODUCTION FUNCTION BY ESTIMATING POTENTIAL OUTPUT AND OUTPUT GAP: THE CASE FOR THE CZECH REPUBLIC AND SLOVAKIA

DANA KLOUDOVÁ

Abstract:

One of the most used methods of estimation of potential output and output gap, used by many national and international organisations, is a production function. The aim of this paper is to study the impact of method of computation capital-to-output ratio on results of estimation of output gap and potential output, which are very important, but not measurable. We used two methods of computation. The first one was simple: we set it up constant. The second one was calculated according to a sophisticated model. The results of this paper have shown that using variable capital-to-output ratio will bring not very different results from using a constant one. These results were confirmed both for Czech economy and Slovak economy.

Keywords: production function, capital-to-output ratio, potential output, HP filter

DOI: 10.20472/EFC.2016.005.010

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