Methods for Output Gap Detection

Economic development of each country has several phases. Analyze the economic cycles means to deal with the identification of individual phases of the economy and to detect factors that cause them. One of them is the output gap which is the main indicator of inflationary pressures in the economy. Determination of the output gap is important from a macroeconomic perspective, particularly for the creation of fiscal and monetary policies. The output gap is defined as the difference between the actual and potential output. Since potential output value is immeasurable as the output gap, we can say that its quantification is based on several assumptions that can have an economic or statistical aspect. In literature we can meet with a number of methods that enable its detection. This paper discusses the possible ways to estimate the output gap, showing their shortcomings. In conclusion, we present some of them applied to the Slovak economy.