Is the Output Gap a Useful Indicator of Inflation

Claus, Iris

doi:10.2139/ssrn.320826

Cited by 15 publications

(20 citation statements)

References 14 publications

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“…In general, these methods produced similar broad time profile of the output gap (deBrouwer, 1998). Coe and McDermott (1997) find the estimated output gap is in the range of ±3 percent for the 13 Asian economies under their investigation.…”

Section: Output Gapmentioning

confidence: 90%

Measuring the Size of Output Gap in Sukuk Issuing OIC Member Countries

Ahmad

Hashim²,

Johari³

2015

MJSS

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Section: Output Gapmentioning

confidence: 90%

Measuring the Size of Output Gap in Sukuk Issuing OIC Member Countries

Ahmad

Hashim²,

Johari³

2015

MJSS

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“…5 The general criticisms of this technique, however, are well documented in the literature (Gibbs 1995;Diebold and Senhadji 1996;de Brouwer 1998;Billmeier 2004). Notwithstanding the violations of time series properties, one of the main drawbacks of this technique is that it assumes that potential output grows at a constant rate, which implies that only demand shocks influence this variable overtime, an interpretation that goes against the consensus that supply shocks also contribute to variations in output (Claus, 2000). Moreover, cognizant of the fact that the growth of output depends on the growth of the factors of production and improvements in technology, there is no reason for these factors of production to be constant over time, especially when economies are subject to considerable structural changes over the years.…”

Section: The Linear Trend Methodsmentioning

confidence: 99%

“…We test at each stage whether the addition of a particular measure of output gap improves the accuracy of the resulting inflation forecast. To this end, the methodology we follow is that of Orphanides and van Norden (2004) and Claus (2000) in estimating the following equations. Model 2 relates the changes in inflation to the changes in output gap and as indicated by Claus (2000), this specification constrains the coefficients of the level of output gap to alternate in sign and to sum zero.…”

Section: Forecast Methodologymentioning

confidence: 99%

“…To this end, the methodology we follow is that of Orphanides and van Norden (2004) and Claus (2000) in estimating the following equations. Model 2 relates the changes in inflation to the changes in output gap and as indicated by Claus (2000), this specification constrains the coefficients of the level of output gap to alternate in sign and to sum zero. It is also the case that the change in inflation depends on how fast aggregate demand is growing relative to potential output.…”

Section: Forecast Methodologymentioning

confidence: 99%

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Output gap and inflation nexus: the case of United Arab Emirates

Osman

Louis

Balli

2009

IJEBR

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Output gap is generally used in assessing both the inflationary pressures and the cyclical position of a nation's economy. However, this variable is not observable and must be estimated. In this paper, we accomplish two tasks. First, we estimate the output gap for the United Arab Emirates (UAE) using four different statistical methods (i.e. the linear method, the Hodrick-Prescott filter, Band-pass filter and the unobserved components model). Second, we evaluate to what extent the fluctuations of output gap, however constructed or measured, are a good predictor of inflation in the UAE. This is carried out by comparing the out-of-sample forecasts generated by the output gap based models to those of the model with alternative indicator, and the benchmark models. Interestingly, although the different measures of output gap produce a broadly similar profile of the UAE business cycles, we could not find any statistical evidence that this variable is a useful predictor of inflation in the UAE.

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“…One of the main indicators of inflation is the output gap, stated by Iris Claus (Mar. 2000) [1] He estimated whether output gap is a good signal of inflationary pressures specified in New Zealand. Iris stated two versions of Phillips curve, one is focus on the change in output gap and another is more concentrate on the level of it.…”

Section: Literature Reviewmentioning

confidence: 99%

The causes of inflation under Neo-Keynesian synthesis in Singapore: 1990-2014

Chen¹

2016

Proceedings of the 2016 International Conference on Humanity, Education and Social Science

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This study investigates the causes of inflation in Singapore from 1990 to 2014 since there were several upheavals according to the inflation growth rate in Singapore during these years. The paper works on the theory of Neo-Keynesian synthesis and with the use of adaptive expectations. The main objectives were to estimate the influence output gap may exert on inflation rate and to infer the policy implications of the estimated results. The study used kyock transformation to substitute expectations into Phillips Curve and employed OLS technique to estimate the relationships. The study finds that: inflation in Singapore is under adaptive expectative mechanism and output gap is positively correlated with inflation rate, so do expectations. The study concludes that in order to restrain inflation rate in an acceptable range, the controlling of output gap should be attached much importance. The study also recommends the need for policy makers to concentrate on public expectations.

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Is the Output Gap a Useful Indicator of Inflation

Cited by 15 publications

References 14 publications

Measuring the Size of Output Gap in Sukuk Issuing OIC Member Countries

Measuring the Size of Output Gap in Sukuk Issuing OIC Member Countries

Output gap and inflation nexus: the case of United Arab Emirates

The causes of inflation under Neo-Keynesian synthesis in Singapore: 1990-2014

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