An intuitive method to improve the estimation of output gaps

Wollfram Wilde and Joscha Beckmann

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: Standard procedures for output gap estimates, such as the Hodrick-Prescott Filter or the Production Function Method, suffer from the sample phase shift issue at the end of the sample. This often provides unstable and unreliable estimates for the current output gap. However the current estimate of output gaps is the most relevant one for monetary and fiscal policymakers. The result from time series filters lack an economic founding and tend to produce economic implausible results for the output gap. This paper introduces and evaluates a new method which is able to reduce the uncertainty of output gaps at the end of a sample while allowing for an economic interpretation of the obtained estimate. Our estimates for 12 economies show that we are able to outperform the popular production function methodology (PF) when nowcasting the current output gap.

Keywords: Output Gap; Policy Evaluation (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ets and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181636

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