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  • Andreas Billmeier

Abstract

This paper investigates various output gap measures in a simple inflation forecasting framework. Reflecting the cyclical position of an economy, an (unobservable) output gap has important implications for economic analysis. I construct and compare common output gap measures for five European countries. Since output above potential reflects domestic inflationary pressures, including a gap could improve the accuracy of autoregressive inflation forecasting. This assertion is tested in a simple simulated out-of-sample forecasting exercise for the period 1990-2002. The main conclusions are that an output gap rarely provides useful information and that there is no single best output gap measure across countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/146.

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Length: 35
Date of creation: 01 Aug 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/146

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Keywords: Production; Economic forecasting; inflation; forecasting; statistics; statistic; inflationary pressures; monetary policy; prediction; correlations; time series; equation; wage inflation; inflation forecasts; monetary economics; actual inflation; mean square; inflation rate; econometrics; inflation targeting; correlation; aggregate demand; functional form; standard deviation; sample bias; financial statistics; sample size; predictability; autocorrelation; forecasting inflation; price level; high inflation; probability; average inflation; outlier; probability model; number of regressors; arithmetic; standard errors; descriptive statistic; survey; estimation period; outliers; statistical test; sampling; statistical significance; predictions; descriptive statistics; computation; terms of trade; sample mean; absolute error; statistical methods; significance levels; monetary ? policy; statistical measures; orthogonality; minimization;

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References

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Citations

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Cited by:
  1. Nienke Oomes & Oksana Dynnikova, 2006. "The Utilization-Adjusted Output Gap," IMF Working Papers 06/68, International Monetary Fund.
  2. Hubrich, Kirstin & West, Kenneth D., 2009. "Forecast evaluation of small nested model sets," Working Paper Series 1030, European Central Bank.
  3. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Hilde C. Bjørnland & Leif Brubakk & Anne Sofie Jore, 2006. "Forecasting inflation with an uncertain output gap," Working Paper 2006/02, Norges Bank.
  5. Athena Belegri-Roboli & Panayotis Michaelides, 2006. "Measuring Technological Change in Greece," The Journal of Technology Transfer, Springer, vol. 31(6), pages 663-671, November.
  6. Michaelides, Panayotis & Milios, John, 2009. "TFP change, output gap and inflation in the Russian Federation (1994-2006)," Journal of Economics and Business, Elsevier, vol. 61(4), pages 339-352, July.
  7. Michaelides, Panayotis G. & Papageorgiou, Theofanis & Vouldis, Angelos T., 2013. "Business cycles and economic crisis in Greece (1960–2011): A long run equilibrium analysis in the Eurozone," Economic Modelling, Elsevier, vol. 31(C), pages 804-816.
  8. Theofanis Papageorgiou & Panayotis G. Michaelides & John G. Milios, 2011. "Technology and economic fluctuations in the US food sector (1958-2006): An empirical approach from a political economy perspective," International Journal of Social Economics, Emerald Group Publishing, vol. 38(2), pages 140-164, January.
  9. Moisa, Altar & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating Potential GDP for the Romanian Economy. An Eclectic Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-25, September.
  10. Antonella Palumbo, 2008. "I metodi di stima del PIL potenziale tra fondamenti di Teoria economica e Contenuto empirico," Departmental Working Papers of Economics - University 'Roma Tre' 0092, Department of Economics - University Roma Tre.
  11. Adolfo Cobo, 2005. "Output Gap In Colombia: An Eclectic Approach," BORRADORES DE ECONOMIA 003310, BANCO DE LA REPÚBLICA.
  12. Isabell Koske & Nigel Pain, 2008. "The Usefulness of Output Gaps for Policy Analysis," OECD Economics Department Working Papers 621, OECD Publishing.
  13. International Monetary Fund, 2010. "Estimates of the Output Gap in Armenia with Applications to Monetary and Fiscal Policy," IMF Working Papers 10/197, International Monetary Fund.
  14. Todd E. Clark & Michael W. McCracken, 2010. "Reality checks and nested forecast model comparisons," Working Papers 2010-032, Federal Reserve Bank of St. Louis.
  15. Adolfo L.Cobo, . "Output Gap in Colombia: An Eclectic Approach," Borradores de Economia 327, Banco de la Republica de Colombia.
  16. Papageorgiou, Theofanis & Michaelides, Panayotis G. & Milios, John G., 2010. "Business cycles synchronization and clustering in Europe (1960-2009)," Journal of Economics and Business, Elsevier, vol. 62(5), pages 419-470, September.
  17. Moisa Altar & Ciprian Necula & Gabriel Bobeica, 2009. "A Robust Assessment of the Romanian Business Cycle," Advances in Economic and Financial Research - DOFIN Working Paper Series 28, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
  18. Manfred Esquivel Monge & Mario Alfredo Rojas Sánchez, 2008. "Estimación del producto potencial para Costa Rica: período 1991-2006," Investigación Conjunta - español, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 1-02 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA).
  19. Berlemann, Michael & Hilscher, Kai, 2010. "Effective monetary policy conservatism: A comparison of 11 OECD countries," HWWI Research Papers 2-21, Hamburg Institute of International Economics (HWWI).
  20. Miroslav Plašil, 2011. "Potential Product, Output Gap and Uncertainty Rate Associated with Their Determination while Using the Hodrick-Prescott Filter," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 490-507.
  21. Andreas Billmeier, 2004. "Measuring a Roller Coaster," IMF Working Papers 04/57, International Monetary Fund.

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