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Reliable real-time output gap estimates based on a modified Hamilton filter

Josefine Quast and Maik Wolters

No 133, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: The authors contribute to the debate regarding the reliability of output gap estimates. As an alternative to the Hodrick-Prescott (HP) filter, they propose a simple modification of the filter proposed by Hamilton in 2018 that shares its favorable real-time properties, but leads to a more even coverage of typical business cycle frequencies. Based on output growth and inflation forecasts and a comparison to revised output gap estimates from policy institutions, they find that real-time output gaps based on the modified Hamilton filter are economically much more meaningful measures of the business cycle than those based on other simple statistical trend-cycle decomposition techniques such as the HP or the Bandpass filter.

Keywords: output gap; potential output; trend-cycle decomposition; Hamilton filter; real-time data; inflation forecasting (search for similar items in EconPapers)
JEL-codes: C18 E32 E37 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ets, nep-for, nep-mac and nep-ore
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https://www.econstor.eu/bitstream/10419/195063/1/1663135398.pdf (application/pdf)

Related works:
Working Paper: Reliable real-time output gap estimates based on a modified Hamilton filter (2020) Downloads
Working Paper: Reliable Real-time Output Gap Estimates Based on a Modified Hamilton Filter (2019) Downloads
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