Does the Gap Model Work in Asia?
July 1, 1996
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Summary
There is considerable evidence from industrial countries that the output gap is an important determinant of inflation. We examine whether the gap model also works in developing, newly industrializing, and industrial Asian economies. Our output gaps are based on a new nonparametric estimation procedure for trend output that does not require an arbitrary specification of the degree to which the data are smoothed. We test simple versions of the gap model in which the change in inflation is related to the output gap, as well as to the money supply and the terms of trade. We conclude that the gap model works very well in almost all of the Asian economies we study.
Subject: Inflation, Monetary base, Money, National accounts, National income, Output gap, Potential output, Prices, Production, Terms of trade
Keywords: Asia and Pacific, broad money money supply, calculated output gaps, change in inflation, estimated output gap, gap model, gap variable, Inflation, inflation development, inflation expectation, Monetary base, National income, Output gap, Potential output, research strategy, trend output, WP
Pages:
26
Volume:
1996
DOI:
Issue:
069
Series:
Working Paper No. 1996/069
Stock No:
WPIEA0691996
ISBN:
9781451960747
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 44, No. 1, March 1997.
