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Real-Time Representations of the Output Gap

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  • Anthony Garratt

    (Birkbeck College, London)

  • Kevin Lee

    (University of Leicester, UK)

  • Emi Mise

    (University of Leicester, UK)

  • Kalvinder Shields

    (University of Melbourne, Australia)

Abstract

Methods are described for the appropriate use of data obtained and analysed in real time to represent the output gap. The methods employ cointegrating VAR techniques to model real-time measures and realizations of output series jointly. The model is used to mitigate the impact of data revisions; to generate appropriate forecasts that can deliver economically meaningful output trends and that can take into account the end-of-sample problems encountered in measuring these trends; and to calculate probability forecasts that convey in a clear way the uncertainties associated with the gap measures. The methods are applied to data for the United States 1965q4-2004q4, and the improvements over standard methods are illustrated. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.90.4.792
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 90 (2008)
Issue (Month): 4 (November)
Pages: 792-804

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Handle: RePEc:tpr:restat:v:90:y:2008:i:4:p:792-804

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  1. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
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