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Real Time Representation of the UK Output Gap in the Presence of Trend Uncertainty

Author

Listed:
  • Anthony Garratt

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Kevin Lee
  • Emi Mise
  • Kalvinder Shields

Abstract

This paper describes an approach that accommodates in a coherent way three types of uncertainty when measuring the output gap. These are trend uncertainty (associated with the choice of model and de-trending technique), estimation uncertainty (with a given model) and data uncertainty (associated with the reliability of data). The approach employs VAR models to explain real time measures and realisations of output series jointly along with Bayesian-style ‘model averaging’ procedures. Probability forecasts provide a comprehensive representation of the output gap and the associated uncertainties in real time. The approach is illustrated using a real time dataset for the UK over 1961q2 — 2005q4.

Suggested Citation

  • Anthony Garratt & Kevin Lee & Emi Mise & Kalvinder Shields, 2006. "Real Time Representation of the UK Output Gap in the Presence of Trend Uncertainty," Birkbeck Working Papers in Economics and Finance 0618, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:0618
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    File URL: https://eprints.bbk.ac.uk/id/eprint/26925
    File Function: First version, 2006
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    References listed on IDEAS

    as
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    Cited by:

    1. Antonio Ciccone & Marek Jarociński, 2010. "Determinants of Economic Growth: Will Data Tell?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 222-246, October.
    2. Clements, Michael P. & Beatriz Galvão, Ana, 2010. "First announcements and real economic activity," European Economic Review, Elsevier, vol. 54(6), pages 803-817, August.
    3. Boero, Gianna & Smith, Jeremy & Wallis, Kenneth F., 2008. "Evaluating a three-dimensional panel of point forecasts: The Bank of England Survey of External Forecasters," International Journal of Forecasting, Elsevier, vol. 24(3), pages 354-367.

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    More about this item

    Keywords

    Output gap; real time data; revisions; Hodrick-Prescott trend; exponential smoothing trend; moving average trend; model uncertainty; probability forecasts.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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