Does the Gap Model Work in Asia?

July 1, 1996

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Format: Chicago

C. John McDermott, and David T. Coe Does the Gap Model Work in Asia?, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Inflation, Monetary base, Money, National accounts, National income, Output gap, Potential output, Prices, Production, Terms of trade

Keywords: Asia and Pacific, Broad money money supply, Calculated output gaps, Change in inflation, Estimated output gap, Gap model, Gap variable, Inflation, Inflation development, Inflation expectation, Monetary base, National income, Output gap, Potential output, Research strategy, Trend output, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/069
Stock No:

WPIEA0691996
ISBN:

9781451960747
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 44, No. 1, March 1997.

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