Potential Output,Output Gap,and Inflation --An Empirical Study of Taiwan

• Main Authors: Guh, Song - Yiing, 顧松穎
• Other Authors: David L.Kleykamp
• Format: Others
• Language: zh-TW
• Published: 1997
• Online Access: http://ndltd.ncl.edu.tw/handle/16243525955570441946

碩士 === 淡江大學 === 財務金融學系 === 85 === An important focus of modern business cycle research has been centered oninvestigating the systematic relationship between changes in the rate of inflationand the level of capacity utilization in the economy. Capacity utilization canbe measured in a variety of different way. However, a theoretically appealingapproach is to take the output gap--the gap between actual and potential output--as the appropriate measure of capacity utilization. The objective of this thesis is to estimate Taiwan's output gap and to studyits relation to the behavior of inflation. The thesis consists of two main parts:(1) the estimation of potential output, and (2)empirical tests of the relation ofthe output gap to the rate of inflation. To accomplish the first part of the thesis, an estimation methed employed byAdams and Coe(1990) is used to estimate potential output in Taiwan. The systemconsists of equations on prices, unemployment,wages, and production function.Estimation is carried out using three stage least square. In the secend part, analyses employing both a Lucas supply function and a IS- LMbased gap model are carried out. These analyses use OLS and VAR metheds to investigateinflation's connection with the output gap. Theoretically, we would expect to find apositive, direct relation between the output gap and the rate of inflation. Moreover,we would expect that causality would run from the gap to the inflation rate, but notvice versa. The conclusions can be summarized as follows: (1)The study finds that the output gap has a significant influence on the inflation rate. That is, increases in the output gap tend to increase inflatioin, even after taking into account the autocorrelative structure of inflaton. (2)The impluse response from the gap shows that positive, gap-oriented shocks induce increases in the future course of inflation, but not vice versa, as we would expect.