IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02335667.html
   My bibliography  Save this paper

Some Thoughts and Proposals Concerning the Concept of Output Gap
[Réflexions et suggestions autour du concept d’output gap]

Author

Listed:
  • Sébastien Charles

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis)

  • Thomas Dallery

    (CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Jonathan Marie

    (CEPN - Centre d'Economie de l'Université Paris Nord - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité - Université Sorbonne Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord)

Abstract

Nowadays, the output gap is a key measure used to guide economic policies that aim at stabilizing activity or at fighting inflation. Within the Eurozone, this measure is institutionalized and mobilized by the European Commission in order to estimate the structural budget balances in European Union member states. How to evaluate an output gap and how to use such an estimation are two important issues. Designating the difference between the actual output and the maximum potential output, the output gap depends on what is meant by « potential output ». Yet, the definition of an unobservable activity level is problematical and economists have developed unclear and/or controversial technics to produce estimations. This paper has two main objectives. The first objective is to show that estimating the output gap can be done in a simpler way as usually performed. The second objective is to recall that the economic policy should aim at guaranteeing full employment. We propose two measures of the output gap ; one is based on the rate of capacity utilization, the other is estimated on the basis of the level of unemployment.

Suggested Citation

  • Sébastien Charles & Thomas Dallery & Jonathan Marie, 2018. "Some Thoughts and Proposals Concerning the Concept of Output Gap [Réflexions et suggestions autour du concept d’output gap]," Post-Print hal-02335667, HAL.
  • Handle: RePEc:hal:journl:hal-02335667
    DOI: 10.4000/interventionseconomiques.4710
    Note: View the original document on HAL open archive server: https://hal.univ-lille.fr/hal-02335667
    as

    Download full text from publisher

    File URL: https://hal.univ-lille.fr/hal-02335667/document
    Download Restriction: no

    File URL: https://libkey.io/10.4000/interventionseconomiques.4710?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    2. repec:hal:wpspec:info:hdl:2441/1625 is not listed on IDEAS
    3. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    4. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
    5. repec:hal:spmain:info:hdl:2441/1625 is not listed on IDEAS
    6. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2017. "Secular Stagnation: Policy Options and the Cyclical Sensitivity in Estimates of Potential Output," Working Papers 01/2017, National Bank of Ukraine.
    7. Eloi Laurent & Jacques Le Cacheux, 2015. "Report on the state of the European Union," SciencePo Working papers Main hal-01517468, HAL.
    8. Timothy Cogley, 1997. "Evaluating non-structural measures of the business cycle," Economic Review, Federal Reserve Bank of San Francisco, pages 3-21.
    9. Éric Heyer & Xavier Timbeau, 2002. "Le chômage structurel à 5 % en France ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 80(1), pages 115-151.
    10. Robert F. Martin & Teyanna Munyan & Beth Anne Wilson, 2014. "Potential Output and Recessions: Are We Fooling Ourselves?," IFDP Notes 2014-11-12, Board of Governors of the Federal Reserve System (U.S.).
    11. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    12. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 310-332.
    13. Camille Logeay & Silke Tober, 2006. "Hysteresis And The Nairu In The Euro Area," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(4), pages 409-429, September.
    14. Giorgio Primiceri & Alejandro Justiniano, 2009. "Potential and natural output," 2009 Meeting Papers 25, Society for Economic Dynamics.
    15. Krugman, Paul, 2000. "How Complicated Does the Model Have to Be?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(4), pages 33-42, Winter.
    16. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2015. "Why the Keynesian Multiplier Increases During Hard Times: A Theoretical Explanation Based on Rentiers' Saving Behaviour," Metroeconomica, Wiley Blackwell, vol. 66(3), pages 451-473, July.
    17. Antonella Palumbo, 2013. "Potential Output and Demand-Led Growth," Palgrave Macmillan Books, in: Enrico Sergio Levrero & Antonella Palumbo & Antonella Stirati (ed.), Sraffa and the Reconstruction of Economic Theory: Volume Two, chapter 4, pages 92-119, Palgrave Macmillan.
    18. Ali Alichi, 2015. "A New Methodology for Estimating the Output Gap in the United States," IMF Working Papers 2015/144, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mabrouk Chetouane & Matthieu Lemoine & Marie-Elisabeth de La Serve, 2011. "Impact de la crise sur la croissance potentielle," Post-Print hal-03389354, HAL.
    2. Ahsan ul Haq Satti & Wasim Shahid Malik, 2017. "The Unreliability of Output-Gap Estimates in Real Time," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(3), pages 193-219.
    3. repec:hal:spmain:info:hdl:2441/2128 is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/2128 is not listed on IDEAS
    5. Gian Luigi Mazzi & Frédéric Reynès & Matthieu Lemoine & Paola Veroni, 2008. "Real Time Estimation of Potential Output and Output Gap for the Euro-Area : Comparing Production Function with Unobserved Components and SVAR Approaches," SciencePo Working papers Main hal-01027422, HAL.
    6. Odile Chagny & Matthieu Lemoine, 2003. "Écart de production dans la zone euro. Une estimation par le filtre de Hodrick-Prescott multivarié," Revue de l'OFCE, Presses de Sciences-Po, vol. 86(3), pages 173-202.
    7. repec:spo:wpecon:info:hdl:2441/2128 is not listed on IDEAS
    8. repec:hal:wpspec:info:hdl:2441/2128 is not listed on IDEAS
    9. Tóth, Máté, 2021. "A multivariate unobserved components model to estimate potential output in the euro area: a production function based approach," Working Paper Series 2523, European Central Bank.
    10. repec:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h61k862c2 is not listed on IDEAS
    11. Mr. Alvar Kangur & Koralai Kirabaeva & Jean-Marc Natal & Simon Voigts, 2019. "How Informative Are Real Time Output Gap Estimates in Europe?," IMF Working Papers 2019/200, International Monetary Fund.
    12. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h61k862c2 is not listed on IDEAS
    13. repec:spo:wpmain:info:hdl:2441/1904 is not listed on IDEAS
    14. Guérin, Pierre & Maurin, Laurent & Mohr, Matthias, 2015. "Trend-Cycle Decomposition Of Output And Euro Area Inflation Forecasts: A Real-Time Approach Based On Model Combination," Macroeconomic Dynamics, Cambridge University Press, vol. 19(2), pages 363-393, March.
    15. Jordi Galí, 2015. "Insider-outsider labor markets, hysteresis and monetary policy," Economics Working Papers 1506, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2020.
    16. Larch, Martin & Cugnasca, Alessandro & Kumps, Diederik & Orseau, Eloïse, 2019. "Fiscal policy and the assessment of output gaps in real time: An exercise in risk management," ZEW Discussion Papers 19-013, ZEW - Leibniz Centre for European Economic Research.
    17. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h561p0po1 is not listed on IDEAS
    18. Kátay Gábor & Kerdelhué Lisa & Lequien Matthieu, 2020. "Semi-Structural VAR and Unobserved Components Models to Estimate Finance-Neutral Output Gap," Working papers 791, Banque de France.
    19. repec:hal:wpspec:info:hdl:2441/2005 is not listed on IDEAS
    20. Matthieu LEMOINE & Odile CHAGNY, 2005. "Estimating the potential output of the euro area with a semi-structural multivariate Hodrick-Prescott filter," Computing in Economics and Finance 2005 344, Society for Computational Economics.
    21. repec:hal:wpspec:info:hdl:2441/1904 is not listed on IDEAS
    22. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    23. Marek Jarociński & Michele Lenza, 2018. "An Inflation‐Predicting Measure of the Output Gap in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1189-1224, September.
    24. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h61k5ih10 is not listed on IDEAS
    25. Garga, Vaishali & Singh, Sanjay R., 2021. "Output hysteresis and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 871-886.
    26. Gradzewicz, Michal & Kolasa, Marcin, 2004. "Estimating the output gap in the Polish economy: the VECM approach," MPRA Paper 28227, University Library of Munich, Germany.
    27. Fabia Gumbau-Brisa & Giovanni P. Olivei, 2013. "An evaluation of the Federal Reserve estimates of the natural rate of unemployment in real time," Working Papers 13-24, Federal Reserve Bank of Boston.
    28. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2018. "Why Are Keynesian Multipliers Larger in Hard Times? A Palley-Aftalion-Pasinetti Explanation," Review of Radical Political Economics, Union for Radical Political Economics, vol. 50(4), pages 736-756, December.
    29. Jonas Dovern & Christopher Zuber, 2020. "Recessions and Potential Output: Disentangling Measurement Errors, Supply Shocks, and Hysteresis Effects," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(4), pages 1431-1466, October.
    30. Correa-López, Mónica & Mingorance-Arnáiz, Ana Cristina, 2012. "Demografía, mercado de trabajo y tecnología: El patrón de crecimiento de Cataluña, 1970-2020/Demography, Labour Market and Technical Progress: The Pattern of Growth in Cataluña, 1970-2020," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 365(34)-365, Abril.
    31. Croushore, Dean & van Norden, Simon, 2019. "Fiscal Surprises at the FOMC," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1583-1595.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-02335667. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.