Two well known multivariate non-linearity tests are modified using a principal component analysis. The Monte Carlo results show that the proposed principal component-based tests do provide a remarkable dimensionality reduction without any systematic power loss. It can be concluded that using...

Estimates of potential output and the output gap are essential elements in the toolkit of policy makers. Latest changes in the European fiscal framework have strengthened significantly the role of structural budget balances, which rest on output gap calculations. With the adoption of the Fiscal...