Some Thoughts and Proposals Concerning the Concept of Output Gap

Réflexions et suggestions autour du concept d’output gap

Sebastien Charles, Thomas Dallery and Jonathan Marie

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Abstract: Nowadays, the output gap is a key measure used to guide economic policies that aim at stabilizing activity or at fighting inflation. Within the Eurozone, this measure is institutionalized and mobilized by the European Commission in order to estimate the structural budget balances in European Union member states. How to evaluate an output gap and how to use such an estimation are two important issues. Designating the difference between the actual output and the maximum potential output, the output gap depends on what is meant by « potential output ». Yet, the definition of an unobservable activity level is problematical and economists have developed unclear and/or controversial technics to produce estimations. This paper has two main objectives. The first objective is to show that estimating the output gap can be done in a simpler way as usually performed. The second objective is to recall that the economic policy should aim at guaranteeing full employment. We propose two measures of the output gap ; one is based on the rate of capacity utilization, the other is estimated on the basis of the level of unemployment.

Keywords: output gap; post-keynésianisme; politique budgétaire et fiscal (search for similar items in EconPapers)
Date: 2018
Note: View the original document on HAL open archive server: https://hal.univ-lille.fr/hal-02335667v1
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Published in Interventions Economiques : Papers in Political Economy, 2018, Modèles d'organisation et de collaboration à l'ère du numérique, 60, ⟨10.4000/interventionseconomiques.4710⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02335667

DOI: 10.4000/interventionseconomiques.4710

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