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The reliability of Canadian output-gap estimates

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  • Cayen, Jean-Philippe
  • van Norden, Simon

Abstract

Recent work on policy rules under uncertainty have highlighted the impact of output gap measurement errors on economic outcomes and their importance in the formulation of appropriate policy rules. This paper investigates the reliability of current estimates of the output gap in Canada. We begin by assembling a new data base of quarterly realtime output estimates which spans the post-WWII period and contains data vintages dating back to 1972. We use this with a broad range of univariate and multivariate output gap models to recreate ?contemporary? estimates of the output gap and then study how these estimates are revised over time. The nature and sources of these revisions are used to draw conclusions about the overall measurement errors associated with current estimates of the output gap. Relative to similar recent work with US realtime data, we find that revisions in Canadian output gaps are more important and that the role of data revision is less innocuous than previously indicated. We also show that using the change rather than the level of the output gap may only modestly reduce the measurement problem, and we investigate the relative importance of model uncertainty to overall measurement uncertainty. --

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 3 (December)
Pages: 373-393

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:3:p:373-393

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Web page: http://www.elsevier.com/locate/inca/620163

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Citations

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Cited by:
  1. Rafael Cusinato & André Minella & Sabino Silva Pôrto Júnior, 2013. "Output gap in Brazil: a real-time data analysis," Empirical Economics, Springer, vol. 44(3), pages 1113-1127, June.
  2. Farrell, Greg, 2014. "Countercyclical capital buffers and real-time credit-to-GDP gap estimates: A South African perspective," MPRA Paper 55368, University Library of Munich, Germany.
  3. Todd E. Clark & Sharon Kozicki, 2004. "Estimating equilibrium real interest rates in real time," Research Working Paper RWP 04-08, Federal Reserve Bank of Kansas City.
  4. Bernhardsen, Tom & Eitrheim, Øyvind & Jore, Anne Sofie & Røisland, Øistein, 2004. "Real-time Data for Norway: Challenges for Monetary Policy," Discussion Paper Series 1: Economic Studies 2004,26, Deutsche Bundesbank, Research Centre.
  5. Knut Are Aastveit & Tørres G. Trovik, 2008. "Estimating the output gap in real time: A factor model approach," Working Paper 2008/23, Norges Bank.
  6. Cayen, Jean-Philippe & van Norden, Simon, 2005. "The reliability of Canadian output-gap estimates," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 373-393, December.
  7. L Christopher Plantier & Ozer Karagedikli, 2005. "Do so-called multivariate filters have better revision properties? An empirical analysis," Computing in Economics and Finance 2005 250, Society for Computational Economics.
  8. Marcellino, Massimiliano & Musso, Alberto, 2010. "Real time estimates of the euro area output gap: reliability and forecasting performance," Working Paper Series 1157, European Central Bank.
  9. Ince, Onur & Papell, David H., 2013. "The (un)reliability of real-time output gap estimates with revised data," Economic Modelling, Elsevier, vol. 33(C), pages 713-721.
  10. Hjelm, Göran & Jönsson, Kristian, 2010. "In Search of a Method for Measuring the Output Gap of the Swedish Economy," Working Paper 115, National Institute of Economic Research.
  11. Jean-Philippe Cayen & Marc-André Gosselin & Sharon Kozicki, 2009. "Estimating DSGE-Model-Consistent Trends for Use in Forecasting," Working Papers 09-35, Bank of Canada.
  12. Nikolsko-Rzhevskyy, Alex, 2008. "Monetary Policy Evaluation in Real Time: Forward-Looking Taylor Rules Without Forward-Looking Data," MPRA Paper 11352, University Library of Munich, Germany.
  13. Fernandez, Adriana Z. & Koenig, Evan F. & Nikolsko-Rzhevskyy, Alex, 2010. "Can alternative Taylor-rule specifications describe Federal Reserve policy decisions?," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 733-757, November.
  14. Chiu, Adrian & Wieladek, Tomasz, 2012. "Did output gap measurement improve over time?," Discussion Papers 36, Monetary Policy Committee Unit, Bank of England.
  15. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  16. Adriana Z. Fernandez & Evan F. Koenig & Alex Nikolsko-Rzhevskyy, 2008. "The relative performance of alternative Taylor rule specifications," Staff Papers, Federal Reserve Bank of Dallas, issue Jun.
  17. 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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