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A new methodology for a quarterly measure of the output gap

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  • Marco Cacciotti
  • Cecilia Frale
  • Serena Teobaldo
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    Abstract

    This paper presents a new mixed frequency methodology to estimate output gaps and potential output on a quarterly basis. The methodology strongly relies on the production function method commonly agreed at the European level (D'Auria et.al.,2010) but it significantly improves it allowing to assess the impact of real time forecast for GDP and other underlying variables. This feature of the model is particularly welcome in the current Italian budgetary framework which has foreseen the introduction of the principle of a budget balance in structural terms in the Constitution. By allowing to measure output gap with a quarterly span on the basis of recent developments indicators, the methodology provides interesting hints on the cyclical position of the economy in real time to be used for deriving cyclically-adjusted fiscal aggregates.

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    File URL: http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_it/analisi_progammazione/working_papers/WP_N_6-2013.pdf
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    Bibliographic Info

    Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number 6.

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    Length: 29
    Date of creation: Aug 2013
    Date of revision:
    Handle: RePEc:itt:wpaper:wp2013-6

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    Web page: http://www.dt.tesoro.it
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    Keywords: output gaps; potential output; mixed frequency models;

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    References

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    1. Tommaso Proietti, 2004. "Temporal Disaggregation by State Space Methods: Dynamic Regression Methods Revisited," Econometrics 0411011, EconWPA.
    2. Tommaso Proietti & Filippo Moauro, 2004. "Dynamic Factor Analysis with Nonlinear Temporal Aggregation Constraints," Econometrics 0401003, EconWPA.
    3. Tommaso Proietti, 2004. "On the Estimation of Nonlinearly Aggregated Mixed Models," Econometrics 0411012, EconWPA.
    4. Cecilia Frale & Massimiliano Marcellino & Gian Luigi Mazzi & Tommaso Proietti, . "Survey Data as Coincident or Leading Indicators," Working Papers 3, Department of the Treasury, Ministry of the Economy and of Finance.
    5. Andrew Harvey & Chia-Hui Chung, 2000. "Estimating the underlying change in unemployment in the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 163(3), pages 303-309.
    6. Francesca D'Auria & Cécile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 420, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    7. Roberto S. Mariano & Yasutomo Murasawa, 2003. "A new coincident index of business cycles based on monthly and quarterly series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(4), pages 427-443.
    8. Tommaso Proietti & Cecilia Frale, 2011. "New proposals for the quantification of qualitative survey data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(4), pages 393-408, July.
    9. Cecilia Frale & Massimiliano Marcellino & Gian Luigi Mazzi & Tommaso Proietti, 2011. "EUROMIND: a monthly indicator of the euro area economic conditions," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(2), pages 439-470, 04.
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