GAP MODELS

'Gap' models put together the national income and product, fiscal, monetary, and balance of payments accounts that inform macroeconomic debate in the developing world. This paper sets out saving, foreign exchange, investment, and inflation gap restrictions on potential output growth and capacity utilization, along with a discussion of IMF-style financial programming. Subject to demand-driven and foreign exchange-constrained closures, the model is used to illustrate the effects of devaluation and a heterodox shock anti-inflation package, and to analyze policy problems posed by adverse shocks and incoming resource transfers.