Nowcasting the output gap

Tino Berger, James Morley and Benjamin Wong

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We propose a way to directly nowcast the output gap using the Beveridge-Nelson decomposition based on a mixed-frequency Bayesian VAR. The mixed-frequency approach produces similar but more timely estimates of the U.S. output gap compared to those based on a quarterly model, the CBO measure of potential, or the HP filter. We find that within-quarter nowcasts for the output gap are more reliable than for output growth, with monthly indicators for a credit risk spread, consumer sentiment, and the unemployment rate providing particularly useful new information about the final estimate of the output gap. An out-of-sample analysis of the COVID-19 crisis anticipates the exceptionally large negative output gap of -8.3% in 2020Q2 before the release of real GDP data for the quarter, with both conditional and scenario nowcasts tracking a dramatic decline in the output gap given the April data.

Keywords: Nowcasting; output gap; COVID-19 (search for similar items in EconPapers)
JEL-codes: C32 C55 E32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ets and nep-mac
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Citations: View citations in EconPapers (13)

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Journal Article: Nowcasting the output gap (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-78

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