L’output gap tra scienza e superstizione

The output gap between science and superstition

Abstract

We examine the criteria adopted by the European Commission for assessing EU member states’ compliance with the “fiscal discipline” principles, with a focus on the role played by the output gap. This indicator, due to inertia and uncertainty inherent in its determination, is unable to correctly inform stabilization policies. The empirical literature reveals that the estimation techniques currently in use face serious difficulties in grasping the NAIRU during cyclical fluctuations, especially when these are of considerable strength and duration. There is a systematic tendency to interpret the evolution of real variables as the result of changes in productive capacity, with a distortion in the European Commission’s assessments of the adequacy of member states’ fiscal policies to economic conditions. Significant fiscal retrenchment was imposed, sometimes causing heavy consequences on productive capacity and productivity dynamics, and therefore on growth.

JEL codes:  E02, E32, F45, J64

Keywords: Output gap, Austerity, NAIRU, Unemployment