Does the Gap Model Work in Asia?

Author/Editor:

C. John McDermott ; David T. Coe

Publication Date:

July 1, 1996

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.

Series:

Working Paper No. 1996/069

Subject:

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

Notes:

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

English

Publication Date:

July 1, 1996

ISBN/ISSN:

9781451960747/1018-5941

Stock No:

WPIEA0691996

Pages:

26

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