Does the Gap Model Work in Asia?

26 Pages Posted: 15 Feb 2006

See all articles by David T. Coe

David T. Coe

International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

C. John McDermott

Reserve Bank of New Zealand

Date Written: July 1996

Abstract

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.

JEL Classification: E31, O53

Suggested Citation

Coe, David T. and McDermott, C. John, Does the Gap Model Work in Asia? (July 1996). IMF Working Paper No. 96/69, Available at SSRN: https://ssrn.com/abstract=882967

David T. Coe (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

C. John McDermott

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand

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