Measuring the Euro Area Output Gap

Matteo Barigozzi, Claudio Lissona and Matteo Luciani

Papers from arXiv.org

Abstract: We measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2024, we estimate that the EA economy was tighter than policy institutions estimate, suggesting that the slow EA growth results from a potential output issue, not a business cycle issue. Moreover, we find that a decline in trend inflation, not slack in the economy, kept core inflation below 2% before the pandemic and that demand forces account for at least 30% of the post-pandemic increase in core inflation.

Date: 2025-05
New Economics Papers: this item is included in nep-eec and nep-mon
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http://arxiv.org/pdf/2505.05536 Latest version (application/pdf)

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Working Paper: Measuring the Euro Area Output Gap (2024)
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