OECD Economics Department Working Papers

ISSN :
1815-1973 (en ligne)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Implications of Output Gap Uncertainty in Times of Crisis You or your institution have access to this content

Auteur(s):
Romain Bouis1, Boris Cournède, Ane Kathrine Christensen1
Author Affiliations
  • 1: OCDE, France

Date de publication
06 jui 2012
Bibliographic information
N°:
977
Pages
85
DOI
10.1787/5k95xd7m3szw-en

Cacher / Voir l'abstract

This paper analyses the monetary and fiscal policy implications of output gap estimates in times of crisis. The widening of output gaps observed in major OECD economies in the wake of the recent crisis has been mainly due to total factor productivity gaps, except in the United States where it essentially resulted from a large increase in the unemployment gap. As indicated by "positive" Taylor rules, output gaps influence policy-controlled interest rates and are in principle important indicators to guide monetary policy decisions. However, these gaps are estimated with a large margin of uncertainty, especially when composed mainly of TFP gaps. Given the high uncertainty of output gap estimates at present, monetary policy should put more weight on alternative indicators of inflation pressure such as wage settlements, trends in unit labour costs and a wide range of indicators of inflation expectations. The recent fall in margins observed in some countries may, for instance, translate into a combination of wage moderation and upward price pressure as firms try to rebuild their margins. In the United States, the large unemployment gap could also keep wage inflation under pressure despite a flattening Phillips curve. These downward pressures should not, however, trigger a deflationary spiral as long as inflation expectations stay anchored. As regards fiscal policy, output gaps remain necessary inputs to assess the fiscal stance adjusted for the cycle, such measures of underlying fiscal balances being reasonably robust to output gap uncertainty.
Mots-clés:
inflation, fiscal policy, output gap, monetary policy, unemployment gap
Classification JEL:
  • E23: Macroeconomics and Monetary Economics / Macroeconomics: Consumption, Saving, Production, Employment, and Investment / Production
  • E24: Macroeconomics and Monetary Economics / Macroeconomics: Consumption, Saving, Production, Employment, and Investment / Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
  • E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation
  • E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy
  • E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy