POTENTIAL GROWTH, OUTPUT GAP AND THE CYCLICAL FISCAL POSITION OF THE REPUBLIC OF MACEDONIA

  • Misho Nikolov
Keywords: Potential output, output gap, potential revenues, potential expenditures, Hodrik Prescott method, regression analysis

Abstract

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 uncertaintyThe 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.

References

Calculating potential growth rates and output gaps - A revised production function approach - by Cecile Denis, Daniel Grenouilleau, Kieran Mc Morrow and Werner Roger (Directorate-General for Economic and

Financial Affairs)

Canova, Fabio (1998), Detrending and business cycle facts. Journal of Monetary Economics, 41, pp. 475-512.

Hodrick, Robert J. and Edward C. Prescott (1997), Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money, Credit and Banking, Ohio State University Press, 29(1), pp. 1-16.

Central Bank of Iceland (2000), Measuring the output potential of the economy. Economic and Monetary Developments and Prospects, Monetary Bulletin 200014. Box 2, pp. 14-15. Output Gap - Inflation: The Case of Greece (1858-1938) Erotokritos Varelas Associate Professor Department of Economics, University of Macedonia, 54006 Thessaloniki, Greece

Measurement of the Output gap: A discussion or recent research at the Bank of Canada, by Pierre Stamant and Simon van Norden

Errors in the measurement of the output gap and the design of monetary p[olicy, by Athanasios Orphandies, Richard D.Porter, David

Reifschneider, Robert Tetloe and Frederico Finan Productivity,growth potential and monetary policy in EMU, by Gustav Horn Modeling the U.S. Current account as the Saving-Investment balance, Juann H.Hung, Charles Bronowski

Published
2016-12-24