FAQ: How do I measure the Output gap?

Fabio Canova

No 14943, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: I investigate the properties of potentials and gaps, of permanent and transitory fluctuations using a variety of DSGE models. Model-based gaps display low frequency variations; have similar frequency representation as potentials, and are correlated with them. These features depend on the properties of the disturbances but not on frictions or modeling principles. Permanent and transitory fluctuations display similar features, but are uncorrelated. I use a number of filters to extract trends and cycles from simulated data. Distortions are large. Gaps are best approximated with a polynomial filter; transitory fluctuations with a differencing approach. I design a filter which reduces the biases of existing filters.

Keywords: Gaps and potentials; Permanent and transitory components; Filtering; Cyclical fluctuations; Gain functions (search for similar items in EconPapers)
JEL-codes: C31 E27 E32 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (5)

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