Measuring Output Gap: Is It Worth Your Time?

Jiaqian Chen and Lucyna Gornicka

No 2020/024, IMF Working Papers from International Monetary Fund

Abstract: We apply a range of models to the U.K. data to obtain estimates of the output gap. A structural VAR with an appropriate identification strategy provides improved estimates of output gap with better real time properties and lower sensitivity to temporary shocks than the usual filtering techniques. It also produces smaller out-of-sample forecast errors for inflation. At the same time, however, our results suggest caution in basing policy decisions on output gap estimates.

Keywords: WP; output gap estimate; open economy; open economy SVAR; U.K. output gap; output gap series; output gap model; output gap measure; Output gap; Potential output; Structural vector autoregression; Supply shocks; Inflation; Global; output gaps; real time estimation; business cycles (search for similar items in EconPapers)
Pages: 28
Date: 2020-02-07
New Economics Papers: this item is included in nep-ets and nep-mac
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Citations: View citations in EconPapers (6)

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