Measuring the Euro Area Output Gap

Matteo Barigozzi, Claudio Lissona () and Matteo Luciani
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Claudio Lissona: https://www.unibo.it/sitoweb/claudio.lissona2/en

No 2024-099, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2023, we estimate that the EA economy was tighter than the European Commission and the International Monetary Fund estimate, suggesting that the slow EA growth is the result of a potential output issue, not a business cycle issue. Moreover, we find that credit indicators are crucial for pinning down the output gap, as excluding them leads to estimating a lower output gap in periods of debt build-up and a higher gap in periods of deleveraging.

Keywords: Non-stationary Approximate Dynamic Factor Model; Output gap; Potential output; Trend-Cycle Decomposition (search for similar items in EconPapers)
JEL-codes: C32 C38 C55 E32 E37 (search for similar items in EconPapers)
Pages: 51 p.
Date: 2024-12-20
New Economics Papers: this item is included in nep-eec and nep-inv
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-99

DOI: 10.17016/FEDS.2024.099

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