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The reliability of real-time estimates of the euro area output gap

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  • Marcellino, Massimiliano
  • Musso, Alberto

Abstract

This paper provides evidence on the reliability of euro area real-time output gap estimates. A genuine real-time data set for the euro area is used, including vintages of several sets of euro area output gap estimates available from 1999 to 2010. It turns out that real-time estimates of the output gap tend to be characterised by a high degree of uncertainty, much higher than that resulting from model and estimation uncertainty only. In particular, the evidence indicates that both the magnitude and the sign of the real-time estimates of the euro area output gap are very uncertain. The uncertainty is mostly due to parameter instability and model uncertainty, while data revisions seem to play a minor role. Some euro area real-time measures, based on multivariate components models and capacity utilisation, are relatively less uncertain, but do not appear to be fully reliable along some dimensions. To benchmark our results, we repeat the analysis for the US over the same sample. It turns out that US real-time estimates tend to be revised to a lesser extent than euro area estimates. However, euro area real-time output gap estimates tend to display a higher correlation with the final estimates and the sign of the level of US real-time estimates tends to be revised more often compared to the corresponding euro area estimates. In addition, the data revision component of the revision error is larger for US estimates than for the euro area. Overall, the unreliability in real-time of the US output gap measures detected in earlier studies is confirmed in the more recent period.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 4 (July)
Pages: 1842-1856

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1842-1856

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Output gap Real-time data Euro area Data revisions;

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References

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Cited by:
  1. Feldkircher, Martin, 2012. "The Determinants of Vulnerability to the Global Financial Crisis 2008 to 2009: Credit Growth and Other Sources of Risk," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 26/2012, Bank of Finland, Institute for Economies in Transition.
  2. Massimiliano Marcellino & Alberto Musso, 2010. "the Reliability of Real Time Estimates of the EURO Area Output Gap," Economics Working Papers, European University Institute ECO2010/06, European University Institute.
  3. Jens Boysen-Hogrefe, 2014. "Monetary aggregates to improve early output gap estimates in the euro area - an empirical assessment," Kiel Working Papers 1908, Kiel Institute for the World Economy.
  4. Garratt, Anthony & Mitchell, James & Vahey, Shaun P., 2014. "Measuring output gap nowcast uncertainty," International Journal of Forecasting, Elsevier, Elsevier, vol. 30(2), pages 268-279.
  5. Jaqueson K. Galimberti & Marcelo L. Moura, 2014. "Improving the Reliability of Real-time Hodrick-Prescott Filtering Using Survey Forecasts," KOF Working papers 14-360, KOF Swiss Economic Institute, ETH Zurich.
  6. Boysen-Hogrefe, Jens, 2014. "Konjunkturbereinigung der Länder: Eine Quasi-Echtzeitanalyse am Beispiel Schleswig-Holsteins," Kiel Discussion Papers 538, Kiel Institute for the World Economy (IfW).
  7. Onur Ince & David H. Papell, 2013. "The (Un)Reliability of Real-Time Output Gap Estimates with Revised Data," Working Papers, Department of Economics, Appalachian State University 13-02, Department of Economics, Appalachian State University.
  8. Cláudia Duarte, 2014. "Autoregressive augmentation of MIDAS regressions," Working Papers, Banco de Portugal, Economics and Research Department w201401, Banco de Portugal, Economics and Research Department.
  9. Dominik Bernhofer & Octavio Fernández-Amador & Martin Gächter & Friedrich Sindermann, 2014. "Finance, Potential Output and the Business Cycle: Empirical Evidence from Selected Advanced and CESEE Economies," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 52-75.
  10. Aastveit, Knut Are & Trovik, Tørres, 2014. "Estimating the output gap in real time: A factor model approach," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 54(2), pages 180-193.
  11. Martin Plödt & Claire Reicher, 2014. "Estimating simple fiscal policy reaction functions for the euro area countries," Kiel Working Papers 1899, Kiel Institute for the World Economy.
  12. Ley, Eduardo & Misch, Florian, 2013. "Real-time macro monitoring and fiscal policy," Policy Research Working Paper Series 6303, The World Bank.
  13. Kempkes, Gerhard, 2012. "Cyclical adjustment in fiscal rules: Some evidence on real-time bias for EU-15 countries," Discussion Papers 15/2012, Deutsche Bundesbank, Research Centre.

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