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Which Output Gap Estimates Are Stable in Real Time and Why?

Alessandro Barbarino (), Travis Berge, Han Chen () and Andrea Stella

No 2020-102, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We aim to understand the real-time instability of output gap estimates by comparing a suite of reduced-form models. We propose a new statistical decomposition and find that including a Okun’s law relationship improves real-time stability by alleviating the end-point problem. Models that include the unemployment rate also produce output gaps with relevant economic content. However, we find that no model of the output gap is clearly superior to the others along each metric we consider.

Keywords: Output gap; Real-time data; Trend-cycle decomposition; unobserved component model (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 (search for similar items in EconPapers)
Pages: 32 p.
Date: 2020-12-18
New Economics Papers: this item is included in nep-ets, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-102

DOI: 10.17016/FEDS.2020.102

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