Synchronization and similarity between regional and sectoral output gaps in the Polish manufacturing industry

The notion of the output gap is crucial in understanding underlying economic trends. The macroeconomic stabilization policy can only be effective for all sectors or regions of the economy if regional or sectoral output gaps are sufficiently coherent. This study proposes a new microeconometric model to calculate regional and sectoral output gaps in Poland's manufacturing industry over the period 2009-2020. The model is estimated using official data sources, which include capacity utilization from business tendency surveys and annual enterprise activity reports. To address potential endogeneity issues, the estimation employs control function methods. We assess the synchronization and similarity of the sectoral and regional output gaps in Poland's manufacturing industry. We also analyze the impact of the COVID-19 pandemic on the coherence of regional and sectoral output gaps.