Economic modeling of the GDP gap in Ukraine and worldwide

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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.

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    • Figure 1. Decomposition of potential GDP growth in capital, labor, aggregate factor productivity
    • Figure 2. The unemployment rate in the Eurozone countries and the rate of unemployment that does not accelerate inflation (NAIRU)
    • Figure 3. The natural level of employment for the countries of the Eurozone
    • Figure 4. The impulse response of the model AR (2)
    • Figure 5. The impulse response of the model ARMA (1,1)
    • Figure 6. The impulse response of the model ARMA (1,2)
    • Figure 7. Estimation of breaks of GDP gaps for the countries of the world
    • Figure 8. Estimated values of GDP gaps for the countries of the world
    • Figure 9. Predicted values of GDP gaps for the countries of the world
    • Figure 10. Quarterly GDP gap estimated by HP filter
    • Figure 11. Deviation of the results of one-dimensional filtering from the Hodrick-Prescott multidimensional filter, million dollars USA
    • Table A1. Methods to estimate the potential GDP and GDP breakdowns