We then examine the relation between the world budget surplus factor and estimated world factors in national output gaps
, equity valuation ratios, unexpected inflation, and military spending.
At their peak in late 2007, the MVHP versions of output gaps
were higher and after the crisis lower than those of the standard HP versions.
Despite successive downward revisions to potential GNP, estimates remained overly optimistic and perceived output gaps
excessively negative throughout the 1970s.
Under this interpretation, both inflation and deflation distort the relative prices of goods; and positive and negative output gaps
move households away from their desired allocation of time between labor and leisure.
For the long term, the region has to fill huge output gaps
to achieve sustainable growth, according to economists.
and other advanced economies to go some ways toward closing large output gaps
- that is, the difference between current output and the level of output an economy can produce in a noninflationary way, given the size of its labor force and its potential to invest in and create technological progress.
In recognition that gaps are hard to uncover we try a few different estimates: The Congressional Budget Office's (CB0) estimate of the unemployment and output gaps
, gaps created by detrending the observed data (using a Hodrick-Prescott filter), and a measure of the trend in the unemployment rate that takes into account the underlying labor market churn over time (Tasci and Zaman 2010).
Should growth turn out lower than expected, there is a risk that very large output gaps
would lead to deflation in some countries, with damaging consequences where debt burdens remain high," the IMF said in a document presented at a G20 meeting in Mexico.
These models exploit reduced-form equations and the output gaps
obtained from their methods are a nonaccelerating-inflation or constant-inflation measure.
However, an inertial rule is also identical to one where the Committee is not simply responding to today's inflation and today's output gap
, but one where the Committee takes into account past inflations and past output gaps
Regarding the short term, though I can see that output gaps
are extremely hard to measure, the most reasonable guess is that the current gap remains substantial.
After the comparison of estimated figures from standard and extended Kalman filters, it would be helpful to evaluate the uncertainty surrounding the estimated output gaps
for the baseline model across the methods.