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The Utilization-Adjusted Output Gap: Is the Russian Economy Overheating?

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Author Info

  • Nienke Oomes
  • Oksana Dynnikova

Abstract

This paper estimates the output gap in Russia using a utilization-adjusted production function approach, which we argue is preferable to traditional output gap methods. The approach amounts to (1) using available surveys to estimate the "natural rates" of capacity and labor utilization above which inflation begins to accelerate; (2) estimating a production function with utilization-adjusted capital and labor inputs; and (3) defining potential output as the level of output obtained when both capital and labor are at their estimated natural rates. The results suggest that the output gap in Russia was negative between 1999 and 2003, but may have recently become positive, thus contributing to inflationary pressures.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/68.

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Length: 46
Date of creation: 01 Mar 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/68

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Related research

Keywords: Labor mobility; Labor markets;

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References

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  1. Bils, Mark & Cho, Jang-Ok, 1994. "Cyclical factor utilization," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 319-354, April.
  2. Andreas Billmeier, 2004. "Ghostbusting: Which Output Gap Measure Really Matters?," IMF Working Papers 04/146, International Monetary Fund.
  3. Andrienko, Yuri & Guriev, Sergei, 2003. "Determinants of Interregional Mobility in Russia: Evidence from Panel Data," CEPR Discussion Papers 3835, C.E.P.R. Discussion Papers.
  4. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  5. Norman Morin & John J. Stevens, 2004. "Diverging measures of capacity utilization: an explanation," Finance and Economics Discussion Series 2004-58, Board of Governors of the Federal Reserve System (U.S.).
  6. Norman Morin & John Stevens, 2004. "Estimating capacity utilization from survey data," Finance and Economics Discussion Series 2004-49, Board of Governors of the Federal Reserve System (U.S.).
  7. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  8. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
  9. Irina Dolinskaya & Irina Tytell, 2001. "Explaining Russia's Output Collapse: Aggregate Sources and Regional Evidence," IMF Working Papers 01/16, International Monetary Fund.
  10. Niek Nahuis, 2003. "An alternative demand indicator: the 'non-accelerating inflation rate of capacity utilization'," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1339-1344.
  11. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
  12. Kwon, Goohoon & Spilimbergo, Antonio, 2005. "Russia's Regions: Income Volatility, Labour Mobility and Fiscal Policy," CEPR Discussion Papers 5265, C.E.P.R. Discussion Papers.
  13. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  14. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
  15. Baxter, Marianne & Farr, Dorsey D., 2005. "Variable capital utilization and international business cycles," Journal of International Economics, Elsevier, vol. 65(2), pages 335-347, March.
  16. Kenneth M. Emery & Chih-Ping Chang, 1997. "Is there a stable relationship between capacity utilization and inflation?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 14-20.
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Citations

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Cited by:
  1. Aleksejs Melihovs & Anna Zasova, 2009. "The Assessment of Natural Rate of Unemployment and Capacity Utilisation in Latvia," Working Papers 2009/02, Latvijas Banka.
  2. Antonio Spilimbergo, 2005. "Measuring the Performance of Fiscal Policy in Russia," IMF Working Papers 05/241, International Monetary Fund.
  3. Eteri Kvintradze, 2010. "Russia's Output Collapse and Recovery: Evidence from the Post-Soviet Transition," IMF Working Papers 10/89, International Monetary Fund.
  4. Michaelides, Panayotis & Milios, John, 2009. "TFP change, output gap and inflation in the Russian Federation (1994-2006)," Journal of Economics and Business, Elsevier, vol. 61(4), pages 339-352, July.
  5. Voskoboynikov, Ilya B. & Timmer, Marcel, 2013. "Is Mining Fuelling Long-run Growth in Russia? Industry Productivity Growth Trends since 1995," GGDC Research Memorandum GD-137, Groningen Growth and Development Centre, University of Groningen.
  6. International Monetary Fund, 2010. "Estimates of the Output Gap in Armenia with Applications to Monetary and Fiscal Policy," IMF Working Papers 10/197, International Monetary Fund.
  7. Garbis Iradian, 2007. "Rapid Growth in Transition Economies: Growth-Accounting Approach," IMF Working Papers 07/164, International Monetary Fund.

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