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The Utilization-Adjusted Output Gap: Is the Russian Economy Overheating?

46 Pages Posted: 26 Apr 2006  

Nienke Oomes

International Monetary Fund (IMF)

Oksana Dynnikova

International Monetary Fund (IMF) - European Department

Date Written: March 2006

Abstract

This paper estimates the output gap in Russia using a utilization-adjusted production function approach, which we argue is preferable to traditional output gap methods. The approach amounts to (1) using available surveys to estimate the 'natural rates' of capacity and labor utilization above which inflation begins to accelerate; (2) estimating a production function with utilization-adjusted capital and labor inputs; and (3) defining potential output as the level of output obtained when both capital and labor are at their estimated natural rates. The results suggest that the output gap in Russia was negative between 1999 and 2003, but may have recently become positive, thus contributing to inflationary pressures.

Keywords: Output gap, capacity utilization, natural rate, Phillips curve, Russia

JEL Classification: D24, E31, E32, P24

Suggested Citation

Oomes, Nienke and Dynnikova, Oksana, The Utilization-Adjusted Output Gap: Is the Russian Economy Overheating? (March 2006). IMF Working Paper, Vol. , pp. 1-46, 2006. Available at SSRN: https://ssrn.com/abstract=898729

Nienke Oomes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Oksana Dynnikova

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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