Estimating Euro Area Output Gap Dynamics: Evidence from the updated Area-Wide Model Database

İpek, Mahmut Sefa and Kısacıkoğlu, Burçin

No 19913, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We estimate the output gap for the euro area and 20 member countries using a variety of statistical models, based on 55 years of data. We also update the Area-Wide Model Database (AWMD) through 2025Q2, ensuring it remains publicly accessible. Our key findings are: (1) while statistical models broadly agree on the timing of the peaks and troughs, uncertainty persists about the business cycle's exact state due to differing estimates of the potential output, (2) statistical and institutional estimates generally align but diverge on the size of the output gap, (3) the output gaps of the five largest euro area countries are strongly correlated with each other and the overall euro area. Our work provides an important tool for understanding the business cycle dynamics of Europe's economy and offers a reliable, official output gap measure for policymakers and economists.

Keywords: Output gap; Filtering; Business cycles (search for similar items in EconPapers)
JEL-codes: E17 E23 E32 E37 (search for similar items in EconPapers)
Date: 2025-02
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