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Estimation of the Euro Area Output Gap Using the NAWM

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Author Info
Günter Coenen () (European Central Bank)
Frank Smets () (European Central Bank)
Igor Vetlov () (Bank of Lithuania)

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Abstract

This paper presents preliminary estimates of the euro area flexible-price output gap using the estimated version of the New Area-Wide Model (NAWM) – a large-scale DSGE model of the euro area developed and maintained by ECB staff. Following a definition of the flexible-price output gap frequently used in the literature, we show that the NAWM-based measure may at times differ quite considerably from more traditional output gap measures and may display fluctuations of larger amplitude. The dynamics of flexible-price output is mainly driven by shocks to technology, whereas fluctuations in the output gap can be attributed equally to supply and demand shocks. We analyse how robust this output gap estimate is with respect to new incoming data and compare it’s inflation forecast performance with alternative measures.

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Publisher Info
Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 5.

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Length: 30 pages
Date of creation: 02 Jun 2009
Date of revision:
Handle: RePEc:lie:wpaper:5

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Related research
Keywords: output gap; DSGE modelling; Bayesian inference; euro area;

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
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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This page was last updated on 2009-11-10.

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