| Description |
1 online resource (25 pages) |
| Series |
IMF Working Paper ; WP/19/183 |
|
IMF working paper ; WP/19/183.
|
| Contents |
Cover; Contents; 1 Introduction; 1.1 Motivation and Contributions; 1.2 Output Gaps, Wage Rigidity and Filters; 2 Model; 2.1 Summary of the model; 2.2 Output gap definition; 2.3 Calibration; 3 The model's adjustment to shocks; 3.1 Demand shocks; 3.2 Supply shocks; 3.3 Relation of the model output gap to the Friedman-Phelps 'natural rate'; 4 Mean output gap in the model; 5 Accuracy of output gap filters; 5.1 The Hodrick-Prescott Filter; 5.2 The IMF's multivariate filter; 5.3 The zero-mean property of filters and shock identification; 6 Conclusion |
| Summary |
We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple New Keynesian model with asymmetric wage adjustment costs. Using the model's output gap as a benchmark, we further show that common output gap estimation methods exhibit a systematic bias because they assume a zero mean. The bias is especially large in deep recessions when potential output tends to be most severely underestimated |
| Notes |
Print version record |
| Subject |
Fiscal policy.
|
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Fiscal policy
|
|
Business cycles.
|
|
Fiscal policy.
|
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Monetary policy.
|
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Output gap estimation.
|
| Form |
Electronic book
|
| Author |
Voigts, Simon, author
|
|
International Monetary Fund, issuing body.
|
| ISBN |
1513512757 |
|
9781513512754 |
|
