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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 06 de 2014


Output-gaps in the PIIGS Economies: An Ingredient of a Greek Tragedy

(Publicado em International Journal of Academic Research in Economics and Management Sciences 3(1): 159-179, 2014)

João Sousa Andrade

Faculdade de Economia, Universidade de Coimbra e GEMF

António Portugal Duarte
Faculdade de Economia, Universidade de Coimbra e GEMF

The Fiscal Compact has created new responsibilities in terms of quantitative measures of excess demand in the economy. The concept of structural budget balance is dependent on cycle values. As a consequence one of the primary responsibilities of economics is to build a good indicator of the magnitude of short term disequilibrium. Knowledge of the magnitude of the excess demand in the economy is essential for an appropriate application of the Fiscal Compact. The usual empirical concepts of output gap are not sufficiently well designed to give an accurate view of the negative excess demand when there are output breaks in the economy. The information produced by different (quasi-) official output gaps is quite often misleading, contributing to a rise in the unemployment rate. We propose a solution that might contribute to solve this problem that is clearly a crucial one for the PIIGS in times of crisis.

JEL Classification: C01, E62, H30, H63.

Keywords: Structural deficit, output gap, Cobb-Douglas production function filter, Beveridge and Nelson filter and Hodrick-Prescott filter.

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