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Forecasting trend output in the Euro area

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  • Schumacher, Christian

Abstract

This paper estimates and forecasts trend output and output gaps for the Euro area. In the monetary strategy of the European Central Bank (ECB), trend output is used to forecast a reference value for money. For this purpose, trend output must be forecasted as well. In this paper, a permanent-transitory decomposition (PT) based on cointegration restrictions gives an estimate of trend output in the Euro area. Ex-ante forecasts of trend output are generated and to get an impression of the forecast uncertainty, bootstrap simulation is employed to construct prediction intervals that take into consideration estimation uncertainty. The empirical uncertainty around trend output is relatively smaller than the uncertainty of the output gap. The absolute uncertainty of both indicators is quite large and questions their usefulness for monetary policy. When relying on such indicators monetary authorities should clarify this uncertainty. --

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 109.

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Date of creation: 2000
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Handle: RePEc:zbw:hwwadp:26245

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  8. Yang, M., 1995. "On Identifying Permanent and Transitory Shocks in VAR Models," Papers 95-5, New South Wales - School of Economics.
  9. Gabriel Fagan & JÊrÆme Henry, 1998. "Long run money demand in the EU: Evidence for area-wide aggregates," Empirical Economics, Springer, vol. 23(3), pages 483-506.
  10. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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Cited by:
  1. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Kiel Working Papers 1053, Kiel Institute for the World Economy.
  2. Weinert, Günter & Wohlers, Eckhardt & Brück, Christiane & Feldkord, Eva-Ulrike & Hinze, Jörg & Kirchesch, Kai & Matthies, Klaus, 2005. "Konjunktur 2005: Weltwirtschaft bleibt auf Expansionskurs - Deutschland hinkt hinterher," HWWA Reports 251, Hamburg Institute of International Economics (HWWA).
  3. Döpke, Jörg, 2004. "Real-time data and business cycle analysis in Germany," Discussion Paper Series 1: Economic Studies 2004,11, Deutsche Bundesbank, Research Centre.

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