Does the Gap Model Work in Asia?

Download or read book Does the Gap Model Work in Asia? written by Mr.David T. Coe and published by International Monetary Fund. This book was released on 1996-07-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.