Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum
 Igor Pelipas, Robert Kirchner, Enzo Weber

Is the Output Gap a Useful Indicator for Monetary Policy in Belarus?

The linkage between the real economy and inflation is traditionally of great importance for monetary authorities. In this context, the concept of the output gap plays a prominent role in conventional macroeconomic theory, applied research and monetary policy analysis. However, the concept must be operationalized in order to be used for monetary policy purposes. The main problem is that both potential output and the output gap as a derivative value from the former are not directly observable.

The central question of the paper is whether the output gap can be considered as a useful indicator for monetary policy in Belarus. We have tried to address this question from an empirical point of view, allowing the data to speak freely, and bearing in mind the considerations of economic theory. To this end, we considered two methods for estimating potential output and the output gap, where the dynamics of inflation is explicitly taken into account, namely structural vector autoregression (SVAR) and unobserved component (UC) model.