Estimation of the Euro Area Output Gap Using the NAWM
AbstractThis 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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Bibliographic InfoPaper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 5.
Length: 30 pages
Date of creation: 02 Jun 2009
Date of revision:
output gap; DSGE modelling; Bayesian inference; euro area;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- 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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- Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2010.
"The Output Gap, the Labor Wedge, and the Dynamic Behavior of Hours,"
Working Paper Series
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- Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2010. "The Output Gap, the Labor Wedge, and the Dynamic Behavior of Hours," CEPR Discussion Papers 8005, C.E.P.R. Discussion Papers.
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- Gelain, Paolo, 2010. "The external finance premium in the euro area A useful indicator for monetary policy?," Working Paper Series 1171, European Central Bank.
- Villa, Stefania, 2013. "Financial frictions in the euro area: a Bayesian assessment," Working Paper Series 1521, European Central Bank.
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