The Output Gap and the Potential Growth Rate:Issues and Applications as an Indicator for the Pressure on Price Change

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Research and Statistics Department: Bank of Japan

No 2003-05-09, Bank of Japan Research Papers from Bank of Japan

Abstract: There are a number of factors driving price movements. It would be fair to say, however, that one of the fundamentally decisive factors is the extent to which aggregate supply capacity is actually met by aggregate demand. The difference between aggregate supply capacity and aggregate demand is generally known as the output gap, and it is widely used by international institutions and central banks in many countries all over the world when analyzing economic conditions, as one of the fundamental indicators for evaluating the pressure for price change. Indeed, the output gap underlies the description of future price movements in the Outlook and Risk Assessment of the Economy and Prices, published by the Bank of Japan biannually.

Date: 2003-05-09
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