Does the Gap Model Work in Asia?
David Coe () and
Christopher McDermott ()
No 1996/069, IMF Working Papers from International Monetary Fund
There is considerable evidence from industrial countries that the output gap is an important determinant of inflation. We examine whether the gap model also works in developing, newly industrializing, and industrial Asian economies. Our output gaps are based on a new nonparametric estimation procedure for trend output that does not require an arbitrary specification of the degree to which the data are smoothed. We test simple versions of the gap model in which the change in inflation is related to the output gap, as well as to the money supply and the terms of trade. We conclude that the gap model works very well in almost all of the Asian economies we study.
Keywords: WP; gap model; inflation expectation; gap variable; inflation development; calculated output gaps; change in inflation; Output gap; Inflation; Potential output; Monetary base; National income; Asia and Pacific (search for similar items in EconPapers)
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Journal Article: Does the Gap Model Work in Asia? (1997)
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