Measuring the Natural Output Gap using Actual and Expected Output Data
AbstractAn output gap measure is suggested based on the Beveridge-Nelson decomposition of output using a vector-autoregressive model that includes data on actual output and on expected output obtained from surveys. The paper explains the advantages of using survey data in business cycle analysis and the gap is provided economic meaning by relating it to the natural level of output defined in Dynamic Stochastic General Equilibrium models. The measure is applied to quarterly US data over the period 1970q1-2007q4 and the resultant gap estimates are shown to have sensible statistical properties and perform well in explaining inflation in estimates of New Keynesian Phillips curves.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/21.
Date of creation: Oct 2009
Date of revision:
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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Other versions of this item:
- Kevin Lee & Anthony Garratt & Kalvinder Shields, . "Measuring the Natural Output Gap Using Actual and Expected Output Data," Discussion Papers 10/07, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- Anthony Garratt & Kevin Lee & Kalvinder Shields, 2009. "Measuring the Natural Output Gap using Actual and Expected Output Data," Birkbeck Working Papers in Economics and Finance 0911, Birkbeck, Department of Economics, Mathematics & Statistics.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-CBA-2010-04-17 (Central Banking)
- NEP-MAC-2010-04-17 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Javier Andres & J. David López-Salido & Edward Nelson, 2005.
"Sticky-price models and the natural rate hypothesis,"
2005-018, Federal Reserve Bank of St. Louis.
- Andres, Javier & Lopez-Salido, J. David & Nelson, Edward, 2005. "Sticky-price models and the natural rate hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 1025-1053, July.
- Javier Andrés & David López-Salido & Edward Nelson, 2005. "Sticky-Price Models and the Natural Rate Hypothesis," Banco de Espaï¿½a Working Papers 0521, Banco de Espa�a.
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