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A new methodology for a quarterly measure of the output gap

Author

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  • Marco Cacciotti
  • Cecilia Frale
  • Serena Teobaldo

Abstract

This paper presents a new mixed frequency methodology to estimate output gaps and potential output on a quarterly basis. The methodology strongly relies on the production function method commonly agreed at the European level (D'Auria et.al.,2010) but it significantly improves it allowing to assess the impact of real time forecast for GDP and other underlying variables. This feature of the model is particularly welcome in the current Italian budgetary framework which has foreseen the introduction of the principle of a budget balance in structural terms in the Constitution. By allowing to measure output gap with a quarterly span on the basis of recent developments indicators, the methodology provides interesting hints on the cyclical position of the economy in real time to be used for deriving cyclically-adjusted fiscal aggregates.

Suggested Citation

  • Marco Cacciotti & Cecilia Frale & Serena Teobaldo, 2013. "A new methodology for a quarterly measure of the output gap," Working Papers 6, Department of the Treasury, Ministry of the Economy and of Finance.
    • Handle: RePEc:itt:wpaper:wp2013-6
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    References listed on IDEAS

    as
    1. Roberto S. Mariano & Yasutomo Murasawa, 2003. "A new coincident index of business cycles based on monthly and quarterly series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(4), pages 427-443.
    2. Cecilia Frale & Massimiliano Marcellino & Gian Luigi Mazzi & Tommaso Proietti, 2010. "Survey data as coincident or leading indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 109-131.
    3. Tommaso Proietti, 2006. "Temporal disaggregation by state space methods: Dynamic regression methods revisited," Econometrics Journal, Royal Economic Society, vol. 9(3), pages 357-372, November.
    4. Tommaso Proietti, 2004. "On the Estimation of Nonlinearly Aggregated Mixed Models," Econometrics 0411012, University Library of Munich, Germany.
    5. Tommaso Proietti & Cecilia Frale, 2011. "New proposals for the quantification of qualitative survey data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(4), pages 393-408, July.
    6. S. J. Koopman & J. Durbin, 2000. "Fast Filtering and Smoothing for Multivariate State Space Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 21(3), pages 281-296, May.
    7. Andrew Harvey & Chia‐Hui Chung, 2000. "Estimating the underlying change in unemployment in the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 163(3), pages 303-309.
    8. Cecilia Frale & Massimiliano Marcellino & Gian Luigi Mazzi & Tommaso Proietti, 2011. "EUROMIND: a monthly indicator of the euro area economic conditions," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(2), pages 439-470, April.
    9. Francesca D'Auria & Cécile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 2008 - 2015 420, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Tommaso Proietti & Filippo Moauro, 2006. "Dynamic factor analysis with non‐linear temporal aggregation constraints," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 55(2), pages 281-300, April.
    11. Harvey, Andrew & Proietti, Tommaso (ed.), 2005. "Readings in Unobserved Components Models," OUP Catalogue, Oxford University Press, number 9780199278695.
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    Cited by:

    1. Cecilia Frale, Serena Teobaldo, Marco Cacciotti, Alessandra Caretta, 2013. "A Quarterly Measure Of Potential Output In The New European Fiscal Framework," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 67(2), pages 181-197, April-Jun.
    2. Sieds, 2013. "Complete Volume LXVII n.2 2013," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 67(2), pages 1-197, April-Jun.

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    More about this item

    Keywords

    output gaps; potential output; mixed frequency models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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