Potential Growth, Output Gap And The Cyclical Fiscal Position Of The Republic Of Macedonia

Economic analysis is becoming more quantitative. Thus the analysis of the main macroeconomic variables will be better performed if it is expanded with the analysis of the potential output, the output gap and its relations with the other economic variables. The main objective of this paper is to calculate the potential output and the output gap of the Macedonian economy. The analysis of these variables is useful for the policy makers when they make policy decision, especially in the field of fiscal and external sector analysis. Potential output and the output gap can be used for the analysis of the other sectors as well. The potential output is an unobserved variable which signifies different things to different people, especially when discussed over various time horizons, with the concept appreciated differently when placed in a short, medium or long term perspective. Since it has to be estimated using statistical methods, it is subject to a high degree of uncertainty. The structure of this paper is as follows: first, the concept of potential output and the output gap is being pre- sented. Than the theoretical background for calculating those variables are analyzed. Further more, potential output and the output gap for the Republic of Macedonia is calculated. Economic analysis using these variables is done as well. Finally, recommendation for future research and conclusions are presented.