output gap

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Blog Post

Why structural balances should be scrapped from EU fiscal rules

A prominent team from DG ECFIN of the European Commission challenged some of the criticisms of the EU’s methodology for estimating potential output and output gaps, as well as their role in the EU fiscal framework. In this post, I conclude that their responses to the criticisms they considered are questionable. More importantly, they overlook serious problems with the EU’s potential output methodology.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: October 1, 2019
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Blog Post

Uncertainty over output gap and structural-balance estimates remains elevated

The EU fiscal framework strongly relies on the structural budget balance indicator, which aims to measure the ‘underlying’ position of the budget. But this indicator is not observed, only estimations can be made. This post shows that estimates of the European Commission, the IMF, the OECD and national governments widely differ from each other and all estimates are subject to very large annual revisions. The EU should get rid of the fiscal rules that rely on structural balance estimates and use this opportunity to fundamentally reform its fiscal framework.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: June 17, 2019
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Blog Post

The campaign against ‘nonsense’ output gaps

A campaign against “nonsense” consensus output gaps has been launched on social media. It has triggered responses focusing on the implications of output gaps for fiscal policy under EU rules, especially for Italy. But the debate about the reliability of output-gap estimates is more wide-ranging.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: June 17, 2019
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Opinion

Greece: What to expect after the bail-out

After being under the close scrutiny of three financial assistance programmes since May 2010, Greece has finally left the bail-out in August 2018. How different is the post-bail-out era from the preceding eight years? Will Greece be able to stand on its own? And how might the country improve its economic outlook? In this post, which summarises a presentation recently given at an Athens conference, the author answers these three questions.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: October 9, 2018
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Blog Post

Mind the gap (and its revision)!

In this post Zsolt Darvas presents an analysis of the revisions made to output gap estimates between 2001 and 2015 by the European Commission and the IMF. The output gap shows the difference between actual output and potential output, where the latter should represent the output that could be produced if all resources were employed at their long-term sustainable rate.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: May 20, 2015
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Blog Post

Mind the gap! And the way structural budget balances are calculated*

The so-called structural balance of the general government aims to measure the ‘underlying’ position of the budget by excluding the impact of the economic cycle and one-off measures, like bank recapitalisation costs. It has a crucial role in designing fiscal consolidation strategies in the EU (see the Annex at the end).

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: October 18, 2013