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An exploration of real-time revisions of output gap estimates across European countries

Pablo Hernández de Cos, Aitor Lacuesta () and Enrique Moral-Benito ()

No 1605, Occasional Papers from Banco de España, Occasional Papers Homepage

Abstract: This document analyses real-time revisions in output gap estimates published by the European Commission for 15 countries over the period 2002-2014. We find that output gap revisions (both in levels and changes) are mainly driven by GDP growth forecast errors. Also, output gap revisions have opposite signs across expansions and recessions: real-time output gaps are downward biased (smaller than the final estimates) during expansions and upward biased (higher than the final estimates) in recessions. Our findings may have relevant implications for the conduct and assessment of fiscal policy in real time. For instance, according to our results, real-time estimates of the structural balance would be upward biased in expansions and downward biased in recessions. This implies that the fiscal stance of an economy estimated in real time would be excessively expansionary in recessions as compared to the final estimate. As a result, we argue that corrections to real-time estimates of the structural balance suggested in the literature should be contingent on the degree of slack in the economy.

Keywords: output-gaps; real-time data; fiscal policy (search for similar items in EconPapers)
JEL-codes: E32 E52 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-eec and nep-mac
Date: 2016-07
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:1605

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