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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
International Finance Discussion Papers: Output Gaps

International Finance Discussion Papers: Output Gaps

United States Federal Reserve Board
Kiley, Michael T.

Paperback

General Political Science

Publisher Price: $17.75

ISBN10: 1288704445
ISBN13: 9781288704446
Publisher: Bibliogov
Published: Feb 5 2013
Pages: 56
Weight: 0.26
Height: 0.12 Width: 7.44 Depth: 9.69
Language: English
What is the output gap? There are many definitions in the economics literature, all of which have a long history. I discuss three alternatives: the deviation of output from its long-run stochastic trend (i.e., the Beveridge-Nelson cycle); the deviation of output from the level consistent with current technologies and normal utilization of capital and labor input (i.e., the production-function approach); and the deviation of output from flexible-price output (i.e., its natural rate). Estimates of each concept are presented from a dynamic-stochastic-general-equilibrium (DSGE) model of the U.S. economy used at the Federal Reserve Board. Four points are emphasized: The DSGE model's estimate of the Beveridge-Nelson gap is very similar to gaps from policy institutions, but the DSGE model's estimate of potential growth has a higher variance and substantially different covariance with GDP growth; the natural rate concept depends strongly on model assumptions and is not designed to guide nominal interest rate movements in Taylor rules in the same way as the other measures; the natural rate and production function trends converge to the Beveridge-Nelson trend; and the DSGE model's estimate of the Beveridge-Nelson gap is as closely related to unemployment fluctuations as those from policy institutions and has more predictive ability for inflation.

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