The stability and economic relevance of output gap estimates

Alessandro Barbarino, Travis J. Berge and Andrea Stella

Journal of Applied Econometrics, 2024, vol. 39, issue 6, 1065-1081

Abstract: Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We provide a comprehensive comparison of real‐time output gap estimates, with the aim of understanding this real‐time instability. Using a statistical decomposition, we find that including Okun's law relationship improves real‐time stability by alleviating the end‐point problem. Models that include the unemployment rate also produce output gaps with relevant economic content.

Date: 2024
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https://doi.org/10.1002/jae.3062

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Persistent link: https://EconPapers.repec.org/RePEc:wly:japmet:v:39:y:2024:i:6:p:1065-1081

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