Sunday 30 October 2011

Output Gaps in OECD Countries

The OECD Economic Outlook has a table showing output gaps for OECD countries. The output gap is defined as the percentage change of  actual output from potential output. Potential output is also known as the full employment or natural level of output. This is the amount of output that could be produced if the economy used all of its resources efficiently.

The effects of the most recent recession are clear as all of the countries recorded negative output gaps in 2009 and 2010. Canada's -5.2% output gap in 2009 was slightly above the OECD average while Canada's forecasted output gap for 2011 and 2012 are slightly above the OECD average. .Many countries are expected to have negative output gaps in the years 2011 and 2012. Greece, for example, is forecast to have a negative output gap of 11.1% and 11.2% in 2011 and 2012 respectively.


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  1. Unknown1 November 2011 at 15:58

    Can capacity utilization be used as a proxy for the output gap? The latter is unobervable while data on the former appears to be more readily available. My point being is how would you suggest we calculate Y : Output gap = Y*–Y where Y* is actual output and Y is potential output.
    Further to this, would you support the gap representative of full employment level of output or Friedman's monetarist slight of hand that it is level of output associated with "NAIRU"?

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