Abstract:Estimation of potential output and output gap is one of the key issues for the conduct of macroeconomic policies and structural reforms in the long-run as the idea of output gap helps decide on the stance of such policies. A positive output gap, for instance, indicates that aggregate demand exceeds the productive capacity of the economy resulting into inflationary pressure. In contrast, a negative output gap is associated with recession, spare capacity, disinflation, and unemployment rate above the non-acceler… Show more
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