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The Importance of a Good Indicator for Global Exciess Demand

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  • João Sousa Andrade

    ()
    (Faculdade de Economia da Universidade de Coimbra, Grupo de Estudos Monetários e Financeiros (GEMF))

  • António Portugal Duarte

    ()
    (Faculdade de Economia da Universidade de Coimbra, Grupo de Estudos Monetários e Financeiros (GEMF))

Abstract

One of the primary responsibilities of economics is to build a good indicator of the magnitude of short term disequilibrium. Knowledge of the magnitude of the excess demand in the economy is essential for conducting fiscal and monetary policy. In a period of contraction when monetary policy is designed to control inflation, the excess demand measure is vital in constructing the concept of structural public budget balance, since the usual empirical concepts of output gap are not sufficiently well designed to give an accurate view of the negative excess demand when there are output breaks in the economy. The information produced by different quasi-official output gaps is quite often misleading, contributing to a rise in the unemployment rate, in the face of which policy-makers usually say “everything is all right, there nothing to be done”. We propose a solution that might contribute to solve this problem that is clearly a crucial one in times of crisis.

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Bibliographic Info

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This chapter was published in:

  • Paulino Teixeira & António Portugal Duarte & Srdjan Redzepagic & Dejan Eric (ed.), 2012. "European Integration Process in Western Balkan Countries," Books, Institute of Economic Sciences, Institute of Economic Sciences, edition 1, volume 1, number euinpro, December.
    This item is provided by Institute of Economic Sciences in its series Book Chapters with number euinpro-1.

    Handle: RePEc:ibg:chaptr:euinpro-1

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    Keywords: Output gap; unemployment; potential output;

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