ESTIMATION OF THE OUTPUT GAP IN CZECH AGRICULTURE

Potential output represents maximum sustainable level of output that the economy can produce. Although output gap is usually measured for the whole economy, we are able to break down the economy and estimate output gap for any given sector (we focus on Czech agriculture exclusively). We followed methodology of Czech National Bank (Hajek and Bezdek, 2010) and Plasil (2011): the former focuses on Cobb-Douglas production function and Hodrick-Prescott filter for detrending of total-factor productivity. The latter is maximum entropy bootstrapping technique which is particularly useful because beside point estimate we are able to get confidence intervals as well. The results show that total-factor productivity is steadily increasing in Czech agriculture. Actual output is also steadily increasing since 2010 mainly due to higher capital stock. We conclude that potential output is ranging between 56 to 76 billion CZK and as of 2018 actual output is around its potential. If the actual output surpasses its potential over a long period of time, it may raise some issues such as growth in consumer prices of agricultural products and other related effects.