Output gap and inflation nexus: the case of United Arab Emirates
AbstractOutput gap is generally used in assessing both the inflationary pressures and the cyclical position of a nation’s economy. However, this variable is not observable and must be estimated. In this paper, we accomplish two tasks. First, we estimate the output gap for the United Arab Emirates (UAE) using four different statistical methods (i.e. the linear method, the Hodrick-Prescott filter, Band-pass filter and the unobserved components model). Second, we evaluate to what extent the fluctuations of output gap, however constructed or measured, are a good predictor of inflation in the UAE. This is carried out by comparing the out-of-sample forecasts generated by the output gap based models to those of the model with alternative indicator, and the benchmark models. Interestingly, although the different measures of output gap produce a broadly similar profile of the UAE business cycles, we could not find any statistical evidence that this variable is a useful predictor of inflation in the UAE.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34006.
Date of creation: 2008
Date of revision: 2009
Publication status: Published in International Journal of Economics and Business Research 1.1(2009): pp. 118-135
Output Gap; Inflation; Forecast; Forecast Accuracy; Forecast Encompassing;
Other versions of this item:
- Mohamed A. Osman & Rosmy Jean Louis & Faruk Balli, 2009. "Output gap and inflation nexus: the case of United Arab Emirates," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 1(1), pages 118-135.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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