An Empirical Study About The Impact Of Financial Factors On The Output Gap

Output gap is a very important concept in the framework of theoretical research and macroeconomic policy formulation,a wide range of policy decisions hinge on assessments of deviations of output gap.As the output gap is not observable,not even after the fact,the estimate is depends on the available data,while the traditional definition usually tend to link the inflation with the output gap,The basic idea is that,all else equal,inflation tends to rise(fall)when output is above(below)potential.Inflation,in other words,the inflation is one of the most important performance of unsustainability.Before the financial crisis,the conceptual association between potential output and inflation is so strong that almost nobody would question this characterisation,most of the relevant theoretical and empirical studies have ignored the impact of financial factors on the output gap.In the connotation of the output gap,sustainability which is thought to make the output gap can be linked with a lot of concepts.In the “great moderation” period,inflation can largely explain the economic sustainability,but after the crisis,this interpretation has been subject to a certain degree of restriction.Because,the potential output is considered to be sustainable,and the output gap is the deviation of actual output to output,but experience suggests that in the presence of financial imbalance,even if inflation is low and stable,the output is still likely to be unsustainable.Moreover,as a measure index of macroeconomic wave,the output gap and inflation has lost its consistent accuracy in the financial crisis,replace of “output gap illusion” and “missing deflation puzzle”.Therefore,whether the financial factors should bring into the theoretical and empirical analysis of the output gap framework in the new economic situation still needs further investigation.Based on the above problems,the main research in the paper are as follows:first,combing the traditional mainstream connotation of potential output and output gap,including the definition of the Keynes doctrine school and new classical school,and the differences between them,then introduces the the impacts it has faced in the new economic situation.Second,combing scholars’ reflection research after the financial crisis,and the causes of the failure of the output gap and the inflation index.The existing research shows that financial factors will impact on the output gap both from the perspective of Keynes and the classical,and the impact is exist in inflation too.Third,select the real estate prices,bank credit,the real interest rate gap,stockprices,the real exchange rate gap as financial variables,then using the vector auto regression model for empirical research to find if financial factors affecting the output gap in China.The empirical results show that the financial factors can affect the output gap,and the impact of different financial variables is different too.Among them,the real estate prices,bank credit and the real effective exchange rate gap has expanded the output gap,the real interest rate gap have a negative impact on the output gap,and the impact from stock price is negligible.Therefore,the financial factors should be included in the theoretical framework and empirical research of the output gap.At last,according to the relevant analysis,this paper puts forward three suggestion of the theoretical development,which are policy orientation and the next research direction.