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Estimating euro area output gap dynamics: Evidence from the updated Area-Wide Model Database

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  • İpek, Mahmut S.
  • Kısacıkoğlu, Burçin

Abstract

We estimate the output gap for the euro area and 20 member countries using a variety of statistical models, based on 55 years of data. We also update the Area-Wide Model Database (AWMD) through 2025Q2, ensuring it remains publicly accessible. Our key findings are: (1) while statistical models broadly agree on the timing of the peaks and troughs, uncertainty persists about the business cycle’s exact state due to differing estimates of the potential output, (2) statistical and institutional estimates generally align but diverge on the size of the output gap, (3) the output gaps of the five largest euro area countries are strongly correlated with each other and the overall euro area. Our work provides an important tool for understanding the business cycle dynamics of Europe’s economy and offers a reliable, official output gap measure for policymakers and economists.

Suggested Citation

  • İpek, Mahmut S. & Kısacıkoğlu, Burçin, 2026. "Estimating euro area output gap dynamics: Evidence from the updated Area-Wide Model Database," European Economic Review, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:eecrev:v:181:y:2026:i:c:s0014292125002296
    DOI: 10.1016/j.euroecorev.2025.105179
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    Keywords

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    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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