01679cas a2200253 a 4500 AALejournalIMF015866 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513511740 1018-5941 BD-DhAAL BD-DhAAL Aiyar, Shekhar. The Negative Mean Output Gap / Shekhar Aiyar, Simon Voigts. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (24 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple New Keynesian model with asymmetric wage adjustment costs. Using the model's output gap as a benchmark, we further show that common output gap estimation methods exhibit a systematic bias because they assume a zero mean. The bias is especially large in deep recessions when potential output tends to be most severely underestimated. Mode of access: Internet Voigts, Simon. IMF Working Papers; Working Paper ; No. 2019/183 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/183/001.2019.issue-183-en.xml IMF e-Library