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Which Output Gap Measure Matters for the Arab Gulf Cooperation Council Countries (AGCC): The Overall GDP Output Gap or the Non-Oil Sector Output Gap?

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  • Osman, Mohammad
  • Louis, Rosmy
  • Balli, Faruk

Abstract

In this paper we estimate the output gaps of the AGCC countries using four different methods that are: the linear trend model, Hodrick-Prescott filter, Band-Pass filter and the unobserved components model. To perform meaningful comparisons, we differentiate between the overall and non-oil output gap and estimate their respective gaps. Several primary conclusions are manifestly noted from our analysis. First, all the different methods but the unobserved components model has produced almost similar results. Second, our results indicate that all the countries in the region have similar business cycles. Third, we find that there is no significant difference between the overall output gap measures and the non-oil output gaps for all the countries in the region. Fourth, the estimated output gaps did not have any explanatory power on domestic inflation for all the countries with the exception of Saudi Arabia and Oman.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11612.

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Date of creation: Oct 2008
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Handle: RePEc:pra:mprapa:11612

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Related research

Keywords: ; Output gap; Inflation; Hodrick-Prescott filter; Frequency domain filter; Band-Pass filter; Unobserved Components model; Kalman filter; Phillips Curve;

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References

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  1. GERLACH, Stefan & Peng, Wensheng, 2006. "Output gaps and inflation in Mainland China," China Economic Review, Elsevier, Elsevier, vol. 17(2), pages 210-225.
  2. Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics, EconWPA 9907006, EconWPA.
  3. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  4. Iris Claus, 2000. "Is the output gap a useful indicator of inflation?," Reserve Bank of New Zealand Discussion Paper Series DP2000/05, Reserve Bank of New Zealand.
  5. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
  6. Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1291-98, December.
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Cited by:
  1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "On the Stratonovich – Kalman - Bucy filtering algorithm application for accurate characterization of financial time series with use of state-space model by central banks," MPRA Paper 50235, University Library of Munich, Germany.
  2. Basher, Syed Abul, 2010. "Has the non-oil sector decoupled from oil sector? A case study of Gulf Cooperation Council Countries," MPRA Paper 21059, University Library of Munich, Germany.

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