TFP change, output gap and inflation in the Russian Federation (1994–2006)

The present paper estimates Total Factor Productivity (TFP) change for the Russian economy in the time period 1994–2006. It also calculates potential output and output gap using a Cobb-Douglas (CD) production function and a Hodrick–Prescott filter, as well as the Non-Accelerating Wage Rate of Unemployment (NAWRU), and the Non-Accelerating Inflation Rate of Capacity Utilization (NAICU) concepts. The results show that despite the severe economic crisis TFP has contributed to strong economic growth in the country after 1998, while the output gap, although negative between 1999 and 2003, has recently become positive. The relationship between output gap and inflation is examined and the results suggest that there is a strong (causal) relationship between output gap and inflation in the Russian economy.