An econometric analysis of the output gap fluctuations: The case of Lebanon

This paper shows the reasons for output gap fluctuations in Lebanon during the period 1970-2009 and causal relationships between macroeconomic variables. It indicates that the output gap fluctuations, that measures observed GDP fluctuations around its long-run trend, can be explained by macroeconomic variables and war periods. By means of econometric methods, this research proposes to estimate the elasticity of the output gap with regard to others macroeconomic variables such as household consumption, expenditure government, gross fixed capital formation, and rate of economic dependence. Furthermore, it shows the causality direction between macroeconomic variables and the output gap in the short-run and in the long-run. The output gap is explained by all the macroeconomic variables in the long-run. But in the short-run, the output gap is explained by the household consumption expenditure only. In the short-run, the household consumption expenditure entails a decrease of output gap whereas it increases it in the long-run. In addition, the war does increase the output gap fluctuations.