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Estimating the output gap in real time

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Abstract

I propose a novel method of estimating the potential level of U.S. GDP in real time. The proposed wage-based measure of economic potential remains virtually unchanged when new data are released. The distance between current and potential output ? the output gap ? satisfies Okun?s law and outperforms many other measures of slack in forecasting inflation. Thus, I provide a robust statistical tool useful for understanding current economic conditions and guiding policymaking.

Suggested Citation

  • Anton Cheremukhin, 2013. "Estimating the output gap in real time," Staff Papers, Federal Reserve Bank of Dallas, issue Dec.
    • Handle: RePEc:fip:feddst:00001
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    References listed on IDEAS

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    1. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-368, July.
    2. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    3. Roger E.A. Farmer (ed.), 2008. "Macroeconomics in the Small and the Large," Books, Edward Elgar Publishing, number 13236, March.
    4. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 797-814.
    5. Tyler Atkinson & Evan F. Koenig, 2012. "Inflation, slack, and Fed credibility," Staff Papers, Federal Reserve Bank of Dallas, issue Jan.
    6. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
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    Cited by:

    1. Ludovit Ódor & Gábor P. Kiss, 2014. "Back to basics – good indicators for good fiscal institutions!," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 13(4), pages 125-151.

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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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