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Real-time estimation of the output gap in Japan and its usefulness for inflation forecasting and policymaking

  • Kamada, Koichiro

This paper examines the methods used by the Bank of Japan for the estimation of the output gap. Attention is paid to the real-time estimation problem. After reviewing the evolution of output gap estimation at the Bank, I discuss advantages and disadvantages of the various output gap measures. First, I examine the usefulness of the output gap for inflation forecasting and show that the real-time output gap sometimes includes much noise. Second, I investigate the implications of the real-time estimation problem for the policy evaluation. Third, I exploit TANKAN to enhance the usefulness of the real-time output gap.

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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 3 (December)
Pages: 309-332

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:3:p:309-332
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  2. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
  3. Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CEPR Discussion Papers 4830, C.E.P.R. Discussion Papers.
  4. Kamada, Koichiro & Masuda, Kazuto, 2001. "Effects of Measurement Error on the Output Gap in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 109-154, May.
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  6. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  7. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
  8. Research and Statistics Department, 2003. "The Output Gap and the Potential Growth Rate:Issues and Applications as an Indicator for the Pressure on Price Change," Bank of Japan Research Papers 2003-05-09, Bank of Japan.
  9. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
  10. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35, December.
  11. Kuttner, Kenneth N. & Posen, Adam S., 2004. "The difficulty of discerning what's too tight: Taylor rules and Japanese monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 53-74, March.
  12. Yasuo Hirose & Koichiro Kamada, 2002. "Time-Varying NAIRU and Potential Growth in Japan," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
  13. Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.).
  14. Evan F. Koenig & Sheila Dolmas & Jeremy Piger, 2000. "The use and abuse of "real-time" data in economic forecasting," Working Papers 0004, Federal Reserve Bank of Dallas.
  15. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  16. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  17. Hirose, Yasuo & Kamada, Koichiro, 2003. "A New Technique for Simultaneous Estimation of Potential Output and the Phillips Curve," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 93-112, August.
  18. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
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