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Estimating the Output Gap for Saudi Arabia

Author

Listed:
  • Ryadh M. Alkhareif
  • William A. Barnett
  • Nayef A. Alsadoun

Abstract

The objective of this paper is to estimate annual potential output growth and the output gap for the Saudi economy over the period 1980 to 2015, looking at both total output and non-oil output. The focus on the latter is so that the progress in diversifying the economy might be examined and the possible impact of diversification on potential output might be measured. We use three methods for estimating potential output proposed in the macroeconomic literature. The methodologies include the Hodrick-Prescott filter, Kalman filter, and the production function approach. We compare the three over the entire sample and the last five years. Our findings suggest that the output gap (the difference between actual and potential output, as measured by real GDP) is positive on average over the entire period (i.e., actual output has on average exceeded potential); however, the gap has turned negative and has shrunk in recent years, as fiscal expenditures, particularly in infrastructure, have acted to better align actual and potential. Our analysis also indicated that growth in both potential GDP and total factor productivity have accelerated in the 2011-2015 period. In contrast, growth in these factors has slowed in many other countries, particularly the advanced economies. This better performance of the Saudi economy is possibly due to the development of a resilient financial sector in the Saudi economy.

Suggested Citation

  • Ryadh M. Alkhareif & William A. Barnett & Nayef A. Alsadoun, 2017. "Estimating the Output Gap for Saudi Arabia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 81-90, March.
  • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:3:p:81-90
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    References listed on IDEAS

    as
    1. 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.
    2. Era Dabla-Norris & Si Guo & Vikram Haksar & Minsuk Kim & Kalpana Kochhar & Kevin Wiseman & Aleksandra Zdzienicka, 2015. "The New Normal; A Sector-level Perspective on Productivity Trends in Advanced Economies," IMF Staff Discussion Notes 15/3, International Monetary Fund.
    3. Osman, Mohammad & Louis, Rosmy & Balli, Faruk, 2008. "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?," MPRA Paper 11612, University Library of Munich, Germany.
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    Cited by:

    1. Emmanuel Ziramba & Bernie Zaaruka & Johanna Mumangeni & Charlotte Tjeriko & Jaungura Kaune, 2019. "The Output Gap and Potential Output in Namibia," Journal of Economics and Behavioral Studies, AMH International, vol. 11(5), pages 69-75.
    2. Lenka Roubalová & Lenka Viskotová, 2019. "The Time Augmented Cobb-Douglas Production Function," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(5), pages 1347-1356.
    3. Mohamed A. M. Sallam & Mohamed R. Neffati, 2019. "Estimation and Analysis of the Output Gap for the Saudi Economy; Econometric Study (1970-2016)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 267-284, February.
    4. Ryadh M. Alkhareif & William Barnett, 2020. "Nowcasting Real Gdp For Saudi Arabia," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202018, University of Kansas, Department of Economics, revised Nov 2020.
    5. International Monetary Fund, 2016. "Saudi Arabia; Selected Issues," IMF Staff Country Reports 2016/327, International Monetary Fund.

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    More about this item

    Keywords

    potential output; output gap; total factor productivity; and inflation;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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