Information rigidities and the news-adjusted output gap

Anthony Garratt, Kevin Lee () and Kalvinder Shields

Journal of Economic Dynamics and Control, 2016, vol. 70, issue C, 1-17

Abstract: A vector-autoregressive model of actual output and expected output obtained from surveys is used to test for information rigidities and to provide a characterisation of output dynamics that accommodates these information structures. News on actual and expected outputs is decomposed to identify innovations understood to have short-lived effects and these are used with the model to derive a ‘news-adjusted output gap׳ measure. The approach is applied to US data over 1970q1–2014q2 and the new gap measure is shown to provide a good leading indicator of inflation.

Keywords: Information rigidities; Survey-based expectations; Output gap (search for similar items in EconPapers)
JEL-codes: C32 D84 E32 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:70:y:2016:i:c:p:1-17

DOI: 10.1016/j.jedc.2016.06.004

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