Estimating the output gap for the UAE: a production function approach

Mohamed A. Osman, Rosmy Jean Louis and Faruk Balli

International Journal of Monetary Economics and Finance, 2012, vol. 5, issue 1, 76-86

Abstract: In this paper, we accomplish two tasks. First, we estimate the output gap for the United Arab Emirates using the production function approach. Secondly, we evaluate to what extent the fluctuations of the output gap are an important indicator of domestic inflation. We find that the output gap profile produced by the production function approach fits reasonably well the UAE's recent economic history in capturing past peaks and troughs. To assess how well the output gap performs in explaining domestic inflation, we used a backward-looking Phillips curve equation. The output gap variable had the expected sign but was statistically insignificant.

Keywords: UAE; United Arab Emirates; output gap; inflation; Hodrick–Prescott filter; production function; Phillips curve. (search for similar items in EconPapers)
Date: 2012
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