Vincentas Giedraitis

Actuality
The concept of output gap plays an important role in traditional macroeconomic theory, applied research and monetary policy.

Goal
The paper reveals analyses of the potential economic development in Ukraine and in some countries of the world under limited information. Thus, the practical goal is to consider the best modelling approach for the possibility to regulate GDP in Ukraine, as it has been experienced in other countries of the world.

Method
The research is realized with the help of economic-mathematical modelling of GDP gap based on the analysis of the production function, statistical methods of distinguishing the trend component, one-dimensional filtration, multidimensional filtration.

Results
Practical importance of the paper includes implementation of methods for estimating potential GDP and the GDP gap, in particular, the authors proposed to use an approach based on the production function for the potential growth of European countries modelling. The model reveals that for the Eurozone countries, in the short term, it is not expected that the economy will reach its potential level. The negative forecast is explained by the fact that the Eurozone has been severely affected by the debt crisis. There has been a significant increase in the gap in production volumes, which in turn led to deflation. Despite the uncertainty in the assessment of potential GDP and GDP gap for Ukraine the multidimensional method provided the best modelling result. Thus, it is disclosed that Ukraine is under the growing wave of the business cycle, but not in the synergy with the EU dynamics.

The difference in the GDP levels is crucial for the macroeconomic forecasting to develop adequate and supportive fiscal and monetary policies. Most mismeasurements under current geoeconomics challenges can be explained by the difficulty in predicting recessions and the overestimation of the economy’s potential capacity. The research aims to consider the GDP gap’s effectiveness for the possible forecasting of the monetary policy, particularly the central bank’s interest rate. The study uses quantitative methods, particularly VAR modeling. The VAR model is chosen as a proven useful tool for describing the dynamic behavior of economic time series and forecasting. The data sample is chosen as Eurozone, the United States, and Japan. The similarity is detected on output gaps implementation in the considered states; however, the variety in the responses to the financial crisis is revealed. This difference is due to the different sensitivity of economies on the impact of monetary instruments. In particular, the Japanese economy has a relatively low level of sensitivity to changes in monetary instruments. In terms of the reactions of central banks to the current economic crisis caused by COVID-19, then due to the global lockdown and the incredible decline in economic activity, almost all countries are in a situation of negative GDP gap according the paper’s approach. However, the measures to mitigate it will vary in different states.

Acknowledgment
The paper is done in the framework of scientific faculty research 16КF040-04 “Steady-state security assessment: a new framework for analysis” (2016–2021), Taras Shevchenko National University of Kyiv (Ukraine).