Nowcasting the output gap with shadow rates

Tore Dubbert and Bernd Kempa

Economics Letters, 2024, vol. 236, issue C

Abstract: In a recent paper, Berger et al. (2023) employ the Beveridge–Nelson trend-cycle decomposition based on a mixed-frequency Bayesian vector autoregressive model to nowcast the U.S. output gap, producing more timely estimates compared to a set of alternative measures. Applying the model to a much shorter and slightly modified data set, we show that utilizing shadow interest rates instead of the federal funds rate in the model produces output gap estimates that are more in line with other measures such as those provided by the CBO or the IMF, and further enhances the timeliness of nowcasts.

Keywords: Nowcasting; Output gap; Post-covid economic recovery (search for similar items in EconPapers)
JEL-codes: C32 C55 E32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:236:y:2024:i:c:s0165176524000661

DOI: 10.1016/j.econlet.2024.111583

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