Potential GDP Research Articles

Decomposition of Russia's GDP Growth Rate and GDP Dynamics Factors in 2015

The results of the estimates made using a method developed by the Gaidar Institute for decomposing Russia’s GDP growth rates show that economic contraction in 2015 is determined by structural causes, according to the two scenarios within an updated forecast of the Ministry of Economic Development (MED). The structural causes are contraction of the fundamental growth factors (labor force and capital) as well as stagnation of the Total Factor Productivity, with a negative contribution of the other GDP growth rate components. In particular, the MED projects that the average annual price of crude oil in 2015 will be less than the long-time average annual, hence the foreign-trade component of GDP growth rates becomes negative in both forecast scenarios. The market-determined component of GDP growth rates in 2015 will continue to be negative and even decline compared to 2014, indicating that cyclical shrinkage of the Russian economy will increase. At the same time, a negative value of the output gap is indicative of that actual GDP will be less than potential GDP in 2015.

Economic Performance and Unemployment in the Czech Republic

The Labor market is very important for the overall functioning of the economy. Unemployment rate belongs to the four most important characteristics of the economic efficiency along with gross domestic product, balance of payments and inflation rate. It is incorrect to think that unemployment is a problem only of the unemployed people and their family. High unemployment has many negative consequences - from economic to business, governmental and private. The economic consequences include a decline of the GDP, an increase in the relative poverty and a fall of the potential GDP. Considering businesses, there is a negative impact as well as a positive one. The negative impact is represented by a decline in demand for goods and services. On the other hand, there are a higher number of job seekers from which the firm can select the most suitable ones. Government deals mainly with a fall of revenues and a raise of expenditures. Job is deeply embedded in our culture as well as in our psyche. Through employment, we define who we are. From the individual perspective, losing job has many unpleasant effects such as a drop in living standards due to the loss of income, social exclusion, loss of a social status, deterioration of family relationships and much more. The current economic situation in the European Union changes the type of unemployment in recent years. Text of the article addresses the recessional economic developments in the Czech Republic and unemployment rate of the economically active population associated therewith. The objective is to chart the development of the basic indicator of the functioning of the economy, identify the different types of unemployment in the Czech Republic by the Beveridge curve and through correlation analysis statistically evaluate the relationship between the unemployment rate and the growth rate of real gross domestic product.

Secular Stagnation: A Supply-Side View

Secular stagnation on the supply side takes the form of a slow 1.6 percent annual growth rate of US potential real GDP, roughly half the 3.1 percent annual growth rate of actual real GDP realized from 1972 to 2004. This slowdown stems from a sharp decline in the growth rate of aggregate hours of work and of output per hour. This paper attributes the productivity growth decline to diminishing returns in the digital revolution that had its peak effect business hardware, software, and best practices in the late 1990s but has resulted in little change in those methods over the past decade.

Estimating Potential GDP for the Romanian Economy and Assessing the Sustainability of Economic Growth: A Multivariate Filter Approach

In the current context of economic recovery and rebalancing, the necessity of modelling and estimating the potential output and output gap emerges in order to assess the quality and sustainability of economic growth, the monetary and fiscal policies, as well as the impact of business cycles. Despite the importance of potential GDP and the output gap, there are difficulties in reliably estimating them, as many of the models proposed in the economic literature are calibrated for developed economies and are based on complex macroeconomic relationships and a long history of robust data, while emerging economies exhibit high volatility. The object of this study is to develop a model in order to estimate the potential GDP and output gap and to assess the sustainability of projected growth using a multivariate filter approach. This trend estimation technique is the newest approach proposed by the economic literature and has gained wide acceptance with researchers and practitioners alike, while also being used by the IMF for Romania. The paper will be structured as follows. We first discuss the theoretical background of the model. The second section focuses on an analysis of the Romanian economy for the 1995–2013 time frame, while also providing a forecast for 2014–2017 and an assessment of the sustainability of Romania’s economic growth. The third section sums up the results and concludes.

Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy

The recent financial crisis and ensuing recession appear to have put the productive capacity of the economy on a lower and shallower trajectory than the one that seemed to be in place prior to 2007. Using a version of an unobserved components model introduced by Fleischman and Roberts, we estimate that potential GDP in late 2014 was about 7 percent below the trajectory it appeared to be on prior to 2007. We argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand. Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity in the absence of other considerations. We then discuss how other considerations—such as increased risks of financial instability or inflation instability—could cause policymakers to exercise restraint in their response to cyclical weakness.

Structural Breaks in Potential GDP of Four Major Economies: Just Impaired Credit or the New Normall?

This paper investigates the factors behind the recent growth slowdown (so-called Secular Stagnation) in the US, the euro area and Japan using the metrics of potential output growth. Specifically, our results offer limited support for an impaired credit transmission channel hypothesis (Reinhart and Rogoff, 2009a), while not supporting a supply slowdown hypothesis (Gordon, 2012). We propose a unified framework to test those hypotheses based on structural break tests of potential output. We estimate a variety of potential output growth models accounting for inflation, unemployment, and private credit dynamics (finance-neutral estimates) with multivariate Kalman filters and subject our estimates to structural break tests. We detect structural breaks between 2008 and 2010 for all three countries with Bai-Perron search procedure, the result being robust to the model specification and sample choice, with no significant difference between ordinary and finance-neutral estimates. We proceed with the Chen-Liu test to detect negative temporary change outliers in the Great Recession for the US and the euro area and negative level shift outliers for Japan. Moreover, original breaks in the Chen-Liu test disappear in the US and the euro area once we account for private credit and labour market dynamics, but do not change for Japan.

Euro Area: The Long Way of Recovery

Abstract The Euro Area economy marked an inflexion point during 2Q2013, after the prolonged recession determined by the public debt crisis and its consequences. However, the economic divergence among the member countries persists and the recovery process seems anemic and uneven. In this paper we employ the Cobb-Douglas methodology, the Hodrick-Prescott filter and the ARIMA models in order to estimate the potential GDP and forecast the medium-run evolution of the Euro Area economy. According to our results, the Euro Area economic recovery process would be long, as the potential GDP pace would continue to be below the pre-crisis (Great Recession) period at least until 2016.

A comparative study of Turkey’s output gaps in the recessions

An effective set of monetary, fiscal, and income policies can only be formulated on the basis of a correct estimation of the position of an economy in a cycle. Output gap estimation provides an important tool for predicting the position of the economy. In this paper, we measure output gap for the Turkish Economy for the period between 2000Q1 and 2013Q4, using production function approach and quarterly data. We utilize two definitions of recession: According to the first definition, we refer a period as recession if output gap as a percent of potential GDP takes negative values for at least two consecutive quarters, while NBER definition refers to a period as recession if we observe at least two consecutive quarters of negative real GDP growth rates. On the basis of first definition we find that the imported crisis lasts shorter but costs more in terms of output gap; while on the basis of NBER definition, the imported crisis lasts longer and costs more in terms of negative real GDP growth

The Future is in the Past: Projecting and Plotting the Potential Rate of Growth and Trajectory of the Structural Change of the Chinese Economy for the Next 20 Years

Based on the convergence hypothesis and referring to the experience of East Asian high-performing economies from 1950 to 2010, this paper projects and plots the potential growth rate of the Chinese economy over the next 20 years. It predicts that the potential growth rate of per capita GDP adjusted by purchasing power parity averages at 6.02 percent from 2015 to 2035, while the potential GDP growth rate of 2015 would still be above 8 percent, which implies that the realized rate of growth has not reached its potential since 2012. Besides, based on the per capita GDP projected and on cross-country comparison, the paper plots the trajectory of structural change of the Chinese economy from 2015 to 2035. The result shows that: (i) the value-added share of primary industry will drop more rapidly than the employment share; (ii) the value-added share of secondary industry will decline and employment share will present an inverted U shape whose turning point will probably come between 2020 and 2025; (iii) both the value-added and employment share of tertiary industry will increase continuously.

On the fundamental Deficiencies of Current monetary Policy

We outline three main shortcomings of current monetary policy in Russia for 2014. First, monetary policy is too strict: we estimate output gap over -3% potential GDP, and rule-based key rate is 6,25%. Second, Bank of Russia in 2014 clearly ignores its second goal of promoting stable and developing financial system. Third, today economic agents lack for clear expectations of monetary policy rules, and it is Bank of Russia’s duty to help forming these expectations - both through public commitments and independent monetary policy review.

The Long Term Negative Relationship Between Public Deficit and Structural Unemployment: An Empirical Study of OECD Countries (1980–2009)

With the new European fiscal compact, fiscal rules requiring balanced budgets net of the annual cyclical component have been introduced to limit growth in the ratio of debt to GDP. The objection may arise that such rules would have an adverse effect, especially in the long run on employment and growth. We test the unemployment proposition by investigating, with a panel of 22 OECD countries (1980–2009), the relationship between the non-accelerating inflation rate of unemployment (NAIRU) as the dependent variable, and fiscal policy indicators such as underlying net lending of government as a percentage of potential GDP (UNLG/pot.GDP), and general government total receipts as a percentage of GDP, controlling for additional variables. We find that both UNLG/pot.GDP and the increase in fiscal burden may be relevant in increasing the NAIRU in the long run. High budget deficits not only do not reduce unemployment, but also aggravate it in the long run. Results are robust to the presence of cross sectional correlation. These results suggest that deficits in excess of that allowed by the cyclical budget balance increase structural unemployment. Since high taxes appear to have the same effect, the EU fiscal compact, with respect to the structural employment objective, needs to include a rule on tax burden limits. Further analysis should test whether exogenous causes of high NAIRU have an impact on budget deficits.

An analysis of China's CO2 emission peaking target and pathways

China has set the goal for its CO2 emissions to peak around 2030, which is not only a strategic decision coordinating domestic sustainable development and global climate change mitigation but also an overarching target and a key point of action for China's resource conservation, environmental protection, shift in economic development patterns, and CO2 emission reduction to avoid climate change. The development stage where China maps out the CO2 emission peak target is earlier than that of the developed countries. It is a necessity that the non-fossil energy supplies be able to meet all the increased energy demand for achieving CO2 emission peaking. Given that China's potential GDP annual increasing rate will be more than 4%, and China's total energy demand will continue to increase by approximately 1.0%–1.5% annually around 2030, new and renewable energies will need to increase by 6%–8% annually to meet the desired CO2 emission peak. The share of new and renewable energies in China's total primary energy supply will be approximately 20% by 2030. At that time, the energy consumption elasticity will decrease to around 0.3, and the annual decrease in the rate of CO2 intensity will also be higher than 4% to ensure the sustained growth of GDP. To achieve the CO2 emission peaking target and substantially promote the low-carbon development transformation, China needs to actively promote an energy production and consumption revolution, the innovation of advanced energy technologies, the reform of the energy regulatory system and pricing mechanism, and especially the construction of a national carbon emission cap and trade system.

Assessing the Impact of the European Fiscal Compact on Eurozone Mediterranean States (With A Focus on Malta)

The paper assesses the impact of the European Fiscal Compact on Eurozone Mediterranean States with a focus on Malta by estimating deviations between potential and actual GDP for the Maltese economy, comparing the cyclical components of public revenues and expenditure, and estimating the cyclically adjusted deficit in excess of the requirement of 0.5 per cent structural deficit. A discussion on the structural nature of Malta’s budget deficit ensues. Finally, by comparing public debt ratios of the selected States, the paper examines the policy implications of reducing the budget deficit for the Maltese Islands. DOI: 10.5901/mjss.2014.v5n14p11

GDP갭 분해기법을 이용한 변동요인 분석

GDP갭(gap)이란 잠재GDP와 실제GDP의 격차로서 산출갭(Output gap)이라고도 한다. 잠재GDP는 노동, 자본 등 생산요소를 완전히 활용하여 달성할 수 있는 최대GDP라고 정의할 수 있다. GDP갭은 수요-공급간 불균형을 의미한다고 할 수 있으며 이러한 특성 때문에 물가 및 고용안정을 추구하는 중앙은행들은 정책수행과정에서 GDP갭을 중요한 정보변수로 활용하고 있다. 본 연구에서는 우리나라의 GDP갭을 그간 선행연구에서 사용하였던 필터링 방법에 의해 분해함으로써 GDP갭 변동을 야기하는 주요 요인이 무엇인지 살펴보았다. Fox 등 (2003)와 Fox와 Zurlinden (2006)에서 사용되었던 Super Smoother 알고리즘을 이용하여 우리나라의 명목GDP갭을 분해해 본 결과 이론적인 설명에 부합하는 것으로 나타났다. 명목GDP갭률 변동의 상당부분은 잔차인 총요소생산성으로 설명됨을 알 수 있었는데, 이는 최근들어 급격한 기술변화 및 환경변화 등 생산성 변화가 GDP변동에 큰 영향을 주고 있음을 의미한다. 다른 나라의 경우와 마찬가지로 국내물가의 영향력도 높은 것으로 나타났지만 대외 의존도가 높은 우리 경제의 특성상 교역조건의 변동 역시 상대적으로 명목GDP 움직임에 큰 영향을 주고 있는 것으로 분석되었다. The GDP gap (also called the output gap) is the difference between potential GDP and actual GDP. Potential GDP is the maximum sustainable output that is achieved when the resources (labor and capital) are used to capacity. Central banks pursuing price and employment stability consider the output gap as an informative variable for monetary policy since the output gap could be regarded as a proxy of demand-supply imbalances. In this paper, the GDP gap of Korea is decomposed following the filtering method in the previous research, and major factors that affect the variation of GDP gap are investigated based on the decomposed series. The analysis results by the Super Smoother algorithm used in Fox et al. (2003)and Fox and Zurlinden (2006) are found consistent with theory. Much of the variation of nominal GDP gap is explained by Total Factor Productivity(TFP) gap, which is the change of productivity due to recent technological innovation and environmental change. It is also found that variation of terms of trade significantly affects the GDP gap of Korea due to its high dependency on international trade; however, the effect of the domestic price is not negligible like other countries.

Determinants of OECD Countriess Sovereign Yields: Safe Havens, Purgatory, and the Damned

In this paper, we estimate the determinants of the spreads between the 10-year sovereign bond yields and the (interest rate) swap rate for a sample of 22 OECD countries over the January 1999-December 2013 period, using various models. Our main, fixed-effect, model highlights the crucial role of GDP growth, public deficit and debt liquidity in explaining the level of spreads, while the public debt-to-GDP ratio plays a lesser role. We find that our results are mainly driven by observations on euro area countries after the onset of the 2008 crisis, with observed spreads found to significantly exceed estimated values during the crisis for a number of euro area countries. We also shed light on the effect of unconventional monetary policies, while Target 2 balances are used for euro area countries in order to reflect concerns on the stability of the euro area. Finally, according to our cointegration model, we find a long-term relationship between the spread, the debt-to-GDP ratio, and potential GDP growth, with a larger impact of the latter variable.

Systematic Policy and Forward Guidance at the Fed

The President of the Federal Reserve Bank of Philadelphia argues that the Federal Open Market Committee, by operating with a set of rules or guidelines and clearly stated objectives, could eliminate much of the second guessing about what it is doing and why, and the associated volatility in markets. The author's preference is that the FOMC formulate its policy as a �reaction function� that can be easily explained to the public. As an example of such a reaction function, he cites the proposal of Stanford economist John Taylor, whose �Taylor Rule� calls for setting the nominal fed funds rate based on three factors: (1) the economy's long-run real interest rate; (2) the deviation of inflation from the central bank's target or goal; and (3) an adjustment of the funds rate to departures of real GDP from some measure of �potential� GDP. Although many variations on Taylor's original recommendations could work, the author believes the FOMC should seek to develop a consensus on how it will react to future economic events. Even a qualitative description of such a reaction function would be a step forward. Taking such a systematic approach will improve the effectiveness of monetary policy in both normal times and more unusual or extreme circumstances, such as when policy is constrained by the lower zero bound on interest rates. The author also suggests that a recent (March 19) FOMC statement took a step in this direction when it moved to a qualitative form of forward guidance by stating that the Committee will be assessing progress�both realized and expected�toward its policy objectives.

What causes changes in the effects of fiscal policy? A case study of Japan

In the past two decades, the Japanese government has spent a considerable amount of money to counteract the severe recessions that have recurred since the early 1990s. Numerous studies have pointed out that the effects of these expenditures have diminished since around the 1990s. However, none of these studies has statistically explored the reasons for this diminution, which they implicitly or explicitly mention. The purpose of this study is to statistically investigate these reasons, using a threshold vector autoregression (VAR) in which the causes pointed out in the literature are adopted as the threshold. If the null hypothesis that the estimated parameters are equal under each regime is rejected, we can conclude that a given cause does affect the macroeconomic structure and, in turn, the fiscal policy effects. We then estimate the impulse response functions in both sample periods, as constructed on the basis of threshold estimates, and compare the effects of fiscal policy in each period.The following are the main results of the study. First, we found that the diffusion index of the attitudes of financial institutions toward lending and the yearly change in the annual average of the quarterly ratios of the structural primary budget balance to potential GDP significantly reject the null hypothesis; therefore, we concluded that these variables have a definite impact on fiscal expansion effects. Second, the resulting impulse response functions show that the effects are traditional, although there are some notable differences. In particular, when banks’ attitude toward lending is tight and the financial condition of the government is bad, the demand-enhancing effects of government expenditure should be considered weak. In this regard, the traditional accelerator effects of private investment, the existence of liquidity-constrained households, and non-Keynesian effects are key operative concepts.

Pricing GDP Linked Securities

We propose a simple model for the valuation of sovereign growth linked bonds. The model is calibrated to potential GDP, output gap, real exchange rate and rating implied historical default probabilities. Bond prices are obtained by applying the Esscher transform on the simulated cash flows with the risk aversion parameter calibrated to match market prices of vanilla bonds of the sovereign (or a comparable sovereign). The model was applied to Argentinian data and its US$ vanilla bonds before being used to price Argentina's GDP warrants. Results indicate that our model produce valuations that are close to observed market prices.

Trend-cycle decomposition for Peruvian GDP: application of an alternative method

Perron and Wada (J Monet Econ 56:749–765, 2009) propose a new method of decomposition of the GDP in its trend and cycle components, which overcomes the identification problems of models of unobserved components (UC) and ARIMA models and at the same time, admits non-linearities and asymmetries in cycles. The method assumes that output can be represented by a non-linear model of unobserved components, where disturbances consist of a mixture of normal distributions. In this document, we apply thisalgorithm to Peruvian GDP using quarterly data from 1980 until 2011. As a result of this analysis, we choose the UC-CN model, which presents a mixture of normals in the disturbances of the trend and cycle component of output. The obtained trend clearly reflects the structural change undergone in the early 1990s. After a steep decrease of the trend or potential GDP as a result of drastic adjustment measures, output grew in a more stable way in the following years. In the same way, one can observe an increase in the growth rate of potential GDP from 2002 onwards, which coincides with the monetary reforms that took place at the time. Finally, the obtained cycles are consistent with the evolution of the Peruvian economy and of recession periods that have been traditionally identified. A comparison with other methods of decomposition is also provided.

Uticaj stranih direktnih investicija na izvozne performanse - primer iz prakse

The objective of this paper is to investigate empirically the impact of the FDI inflows on export performance of Macedonia and Turkey. To achieve this objective we use a popular model of export and estimate two models. The first (benchmark) model includes the real effective exchange rate, the potential GDP, trade liberalization and export in the previous year. Along with these explanatory variables, in the second model we include the FDI inflows variable. The results of the benchmark model indicate that trade liberalization has a positive and significant impact on export. The export performance is positively and significantly affected by the last year's exports. The estimated coefficient of real effective exchange rate is not statistically significant. The potential output has a positive impact on the increase of export but it is also statistically not significant. The results of the second model indicate that FDI have a positive impact on export performance of Macedonia and Turkey, but not significant.