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The information content of real-time output gap estimates, an application to the euro area

Author

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  • Rünstler, Gerhard

Abstract

The paper investigates real-time output gap estimates for the euro artea obtained from various unobserved components (UOC) models. Based on a state space modelling framework, three criteria are used to evaluate real-time estimates, I.e. standard errors, unbiasedness and conditional inflation forecasts. Real time estimates from univariate moving average filters and from bivariate UOC models based on output and inflation are found to be rather uninformative. Extended models, which employ the information from cyclical indicators and factor inputs, however, improve substantially upon the former models in all criteria. The pessimism on the reliability of real-time output gap estimates expressed in earlier literature may therefore be overstated. JEL Classification: C52, E31, E32

Suggested Citation

  • Rünstler, Gerhard, 2002. "The information content of real-time output gap estimates, an application to the euro area," Working Paper Series 182, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2002182
    Note: 339116
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp182.pdf
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    More about this item

    Keywords

    filtering and information; inflation dynamics; output gap; UOC models;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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