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The Output Gap in Cyprus and EU-28

Author

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  • Alexandros Polycarpou

    (Economics Research Centre, University of Cyprus)

Abstract

Output gap estimates are used in the calculation of structural fiscal balance indicators that are subsequently employed for the surveillance of economic growth and stability. The European Commission has adopted the production function approach for the estimation of output gap in the EU member states. This paper reviews the estimates and forecast for the output gap over the period 1998 to 2017 for Cyprus, which is obtained using the EU methodology, and compare them with the ones for EU-28. It also examines the sensitivity of the output gap estimates to the assumptions made by the EU for the wage share and for the construction of the capacity utilisation business survey (CUBS) indicator.

Suggested Citation

  • Alexandros Polycarpou, 2016. "The Output Gap in Cyprus and EU-28," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 10(1), pages 87-104, June.
    • Handle: RePEc:erc:cypepr:v:10:y:2016:i:1:p:87-104
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    File URL: https://www.ucy.ac.cy/erc/documents/Polycarpou_87-104.pdf
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    References listed on IDEAS

    as
    1. Karel Havik & Kieran Mc Morrow & Fabrice Orlandi & Christophe Planas & Rafal Raciborski & Werner Roeger & Alessandro Rossi & Anna Thum-Thysen & Valerie Vandermeulen, 2014. "The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps," European Economy - Economic Papers 2008 - 2015 535, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Dupasquier, Chantal & Guay, Alain & St-Amant, Pierre, 1999. "A Survey of Alternative Methodologies for Estimating Potential Output and the Output Gap," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 577-595, July.
    3. Douglas, Paul H, 1976. "The Cobb-Douglas Production Function Once Again: Its History, Its Testing, and Some New Empirical Values," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 903-915, October.
    4. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
    5. Chantal Dupasquier & Alain Guay & Pierre St-Amant, 1997. "A Comparison of Alternative Methodologies for Estimating Potential Output and the Output Gap," Staff Working Papers 97-5, Bank of Canada.
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