GDP Gap


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GDP Gap

The economic growth that an economy would experience if all persons willing to work had jobs. The GDP gap represents growth that can never happen because the economy has not allocated jobs to all willing workers. This can occur for a number of reasons, including excessive government regulation and corporate fear for future earnings. See also: Unemployment rate, Full employment.
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Also, many modern econometric forecasting models used by government institutions contain the curve in one form or another as an adjustment mechanism relating the GDP gap to changes in either wage rates or the price level.
Variable: 1990:QI- 1999:QI- 1990:QI- 1999:QI- Quarterly real GDP 1998:QIV 2010:QIV 1998:QIV 2010:QIV Gap (annualized, in %) Real GDP Gap (t-1) 0.768 0.783 0.602 0.763 (0.00) (0.00) (0.00) (0.00) Real GDP Gap (t-2) -0.019 0.032 0.105 -0.029 (0.90) (0.86) (0.53) (0.85) Real Interest Rate -0.127 -0.171 -0.047 -0.556 (t-1) (0.00) (0.07) (0.17) (0.00) Euro Area -0.006 -0.014 -0.007 -0.024 Inflation in Local (0.15) (0.05) (0.10) (0.07) Currency (t-1) 2008:QIII - -1.502 -1.560 2010:QIV (0.06) (0.02) R-squared 0.80 0.77 0.60 0.86 Durbin alt.
GDP gap = potential--actual real gross domestic product.
policy rate + [B.sub.2] * policy control variable + [B.sub.3] * GDP gap + [B.sub.4] * inflation + [B.sub.5] * reserves + error.
But it seems the actual growth will underperform its potential, as a minus GDP gap is forecast to continue."
Regarding monetary policy, a negative relation is observed between nominal interest rate and GDP gap, which shows that the monetary authorities adopt pro-cyclical stance due to presence of weak institutions [Duncan (2012)].
(5) This rule says that the interest rate should be set to equal one-and-a-half times the inflation rate plus one-half times the GDP gap plus one.
Scientist presented "The National Innovation System Concept" (1982) and defined the national innovation system as the network of institutions in both public and private sector, whose activities and interactions initiate, import, modify and disperse new technologies, but also stressed the need to take into account fluctuations of real GDP in the ratio with potential GDP, defined GDP gap indicator and drew attention to the fact that the economic imbalance of the equilibrium is based on the increased inflation, rising unemployment and related factors affecting the market.
The survey also asked whether the next WAG will be able to close Wales' GDP gap with the rest of the UK.
To compare the different business cycle patterns, we decompose real GDP into the sum of the GDP trend and the GDP gap. (1) The trend is determined by long-run factors such as structural productivity, capital accumulation, and long-run growth in the labor force, while the gap is the cyclical component that reflects short-run factors.
This relationship has been studied since 1960's: the empirical evidence revealed that in the case of the US economy, for every one percent excess of the natural unemployment rate, a 2-3% GDP gap is predicted.
The 2011 budget draft submitted to parliament foresees a 7 per cent of GDP gap, compared to 7.8 per cent in 2010 and a 7.6 per cent of GDP target agreed for next year with international lenders, the International Monetary Fund and the EU.