Measuring Output Gap: Is It Worth Your Time?

February 7, 2020

Preview Citation

Format: Chicago

Jiaqian Chen, and Lucyna Gornicka. Measuring Output Gap: Is It Worth Your Time?, (USA: International Monetary Fund, 2020) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We apply a range of models to the U.K. data to obtain estimates of the output gap. A structural VAR with an appropriate identification strategy provides improved estimates of output gap with better real time properties and lower sensitivity to temporary shocks than the usual filtering techniques. It also produces smaller out-of-sample forecast errors for inflation. At the same time, however, our results suggest caution in basing policy decisions on output gap estimates.

Subject: Econometric analysis, Economic theory, Inflation, Output gap, Potential output, Prices, Production, Structural vector autoregression, Supply shocks

Keywords: Business cycles, Global, Inflation, Open economy, Open economy SVAR, Output gap, Output gap estimate, Output gap measure, Output gap model, Output gap series, Output gaps, Potential output, Real time estimation, Structural vector autoregression, Supply shocks, U.K. output gap, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/024
Stock No:

WPIEA2020024
ISBN:

9781513527864
ISSN:

1018-5941

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