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Measuring the Output Gap using Large Datasets

Author

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  • Matteo Barigozzi

    (Universitá di Bologna)

  • Matteo Luciani

    (Federal Reserve Board)

Abstract

We propose a new measure of the output gap based on a dynamic factor model that is estimated on a large number of U.S. macroeconomic indicators and which incorporates relevant stylized facts about macroeconomic data (comovements, nonstationarity, and the slow drift in long-run output growth over time). We find that (1) from the mid-1990s to 2008, the U.S. economy operated above its potential and (2) in 2018:Q4, the labor market was tighter than the market for goods and services. Because it is mainly data-driven, our measure is a natural complementary tool to the theoretical models used at policy institutions.

Suggested Citation

  • Matteo Barigozzi & Matteo Luciani, 2023. "Measuring the Output Gap using Large Datasets," The Review of Economics and Statistics, MIT Press, vol. 105(6), pages 1500-1514, November.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:6:p:1500-1514
    DOI: 10.1162/rest_a_01119
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