The impact of the output gap on inflationary pressures in times of crisis: Case of Morocco

Abstract

In recent years, inflation and the output gap have occupied an important place in modern macroeconomics. Theoretically, each increase in the level of the output gap implies a situation of economic overheating which will generate inflationary pressures. Several studies have been carried out to find the real determinants that can best explain inflation.

In addition, the output gap is the difference between actual production and potential production. The latter is a maximum production in an economy when it mobilizes all the factors of production, namely, the Capital Factor (K) and the level of employment (L).

 The present work aims to analyze the impact of the output gap on inflation from the estimation of the Phillips curve model by first determining the potential output variable based on a model econometrics of the Cobb Douglass function. Using data covering the period from 1982 to 2019, representing a sample of 38 annual frequency.

The results obtained show that the output gap does not determine inflation in Morocco. Thus, there is a drop in potential production in Morocco from 2011 due, mainly, to the observed slowdown in the rate of change in GFCF to 3.8% on average between 2011 and 2019, to the decline of the employment rate and also to the negative contribution of total factor productivity.

Keywords: Potential output, Output gap, Cobb Douglass function, Phillips curve.

JEL Classification : E23, E31, D2, D24 

Paper type: Empirical research