From many series, one cycle: improved estimates of the business cycle from a multivariate unobserved components model
We construct new estimates of potential output and the output gap using a multivariate approach that allows for an explicit role for measurement errors in the decomposition of real output. Because we include data on hours, output, employment, and the labor force, we are able to decompose our estimate of potential output into separate trends in labor productivity, labor-force participation, weekly hours, and the NAIRU. We find that labor-market variables—especially the unemployment rate—are the most informative individual indicators of the state of the business cycle. Conditional on including these measures, inflation is also very informative. Among measures of output, we find that although they add little to the identification for the cycle, the income-side measures of output are about as informative as the traditional product-side measures about the level of structural productivity and potential output. We also find that the output gap resulting from the recent financial crisis was very large, reaching -7 percent of output in the second half of 2009.
|Date of creation:||2011|
|Date of revision:|
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- Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2005.
"Nowcasting GDP and Inflation: The Real Time Informational Content of Macroeconomic Data Releases,"
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- Domenico Giannone & Lucrezia Reichlin & David H. Small, 2005. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Finance and Economics Discussion Series 2005-42, Board of Governors of the Federal Reserve System (U.S.).
- Domenico Giannone & Lucrezia Reichlin & David H Small, 2007. "Nowcasting GDP and Inflation: The Real-Time Informational Content of Macroeconomic Data Releases," Money Macro and Finance (MMF) Research Group Conference 2006 164, Money Macro and Finance Research Group.
- Giannone, Domenico & Reichlin, Lucrezia & Small, David H., 2006. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Working Paper Series 0633, European Central Bank.
- Arabinda Basistha & Richard Startz, 2005.
"Measuring the NAIRU with Reduced Uncertainty: A Multiple Indicator-Common Component Approach,"
Computing in Economics and Finance 2005
46, Society for Computational Economics.
- Arabinda Basistha & Richard Startz, 2004. "Measuring the NAIRU with Reduced Uncertainty: A Multiple Indicator-Common Component Approach," Working Papers UWEC-2004-22, University of Washington, Department of Economics.
- Shigeru Fujita, 2011. "Effects of extended unemployment insurance benefits: evidence from the monthly CPS," Working Papers 10-35, Federal Reserve Bank of Philadelphia.
- Lawrence J. Christiano & Martin Eichenbaum & Robert J. Vigfusson, 2003.
"What happens after a technology shock?,"
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768, Board of Governors of the Federal Reserve System (U.S.).
- Justin Weidner & John C. Williams, 2009. "How big is the output gap?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun12.
- Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
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