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Real time representation of the UK output gap in the presence of model uncertainty

  • Garratt, Anthony
  • Lee, Kevin
  • Mise, Emi
  • Shields, Kalvinder

We undertake an empirical analysis of the UK output gap using real-time data and an approach that accommodates, in a coherent way, three types of uncertainty when measuring the gap. These are model uncertainty (associated with the choice of model and de-trending technique), estimation uncertainty (with a given model) and measurement uncertainty (associated with the reliability of the data). The approach employs VAR models, along with Bayesian-style 'model averaging' procedures, to jointly explain and forecast real-time measures and realisations of output series. A comprehensive representation of the UK output gap and the associated uncertainties are provided in real time by probability forecasts over 1961q2-2005q4.

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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 25 (2009)
Issue (Month): 1 ()
Pages: 81-102

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Handle: RePEc:eee:intfor:v:25:y:2009:i:1:p:81-102
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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