Measuring Output Gap Nowcast Uncertainty

Anthony Garratt, James Mitchell and Shaun Vahey

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We propose a methodology to gauge the uncertainty in output gap nowcasts across a large number of commonly-deployed vector autoregressions in US inflation and various measures of the output gap. Our approach constructs ensemble nowcast densities using a linear opinion pool. This yields well-calibrated nowcasts for US inflation in real time from 1991q2 to 2010q1, in contrast to those from a univariate autoregressive benchmark. The ensemble nowcast densities for the output gap are considerably more complex than for a single VAR specification. They cannot be described adequately by the first two moments of the forecast densities. To illustrate the usefulness of our approach, we calculate the probability of a negative output gap at around 45 percent between 2004 and 2007. Despite the Greenspan policy regime, and some large point estimates of the output gap, there remained a substantial risk that output was below potential in real time. Our ensemble approach also facilitates probabilistic assessments of “alternative scenarios”. A “dove” scenario (based on distinct output gap measurements) typically raises substantially the probability of a negative output gap (including 2004 through 2007) but has little impact in slumps, in our illustrative example.

JEL-codes: C32 C53 E37 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... ratmitchell_2011.pdf (application/pdf)

Related works:
Journal Article: Measuring output gap nowcast uncertainty (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2011-16

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().