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Measuring coherence of output gaps with an application to the euro area

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  • Mark Mink
  • Jan P.A.M. Jacobs
  • Jakob de Haan

Abstract

If output gaps in a currency union are not sufficiently coherent, the common monetary policy will not be optimal for all countries or regions in the union. It is common practice to measure coherence of output gaps by a correlation coefficient. We propose new measures of output gap coherence, which take differences in the signs and-or amplitudes of the output gaps more adequately into account than the correlation coefficient. We apply these measures to the euro area, using the US as a benchmark. We also examine how sensitive our findings are to different ways of calculating the output gaps. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

Suggested Citation

  • Mark Mink & Jan P.A.M. Jacobs & Jakob de Haan, 2012. "Measuring coherence of output gaps with an application to the euro area," Oxford Economic Papers, Oxford University Press, vol. 64(2), pages 217-236, April.
    • Handle: RePEc:oup:oxecpp:v:64:y:2012:i:2:p:217-236
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    File URL: http://hdl.handle.net/10.1093/oep/gpr049
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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