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Measuring Output Gap: Is It Worth Your Time?
Author:
Mr. Jiaqian Chen null

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Lucyna Gornicka
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 024
Language:
English
Publication Date:
07 Feb 2020
DOI:
https://doi.org/10.5089/9781513527864.001
ISBN:
9781513527864
ISSN:
1018-5941
Pages:
28
Keywords:
WP; output gap estimate; open economy; open economy SVAR; U.K. output gap; output gap series; output gap model; output gap measure; Output gap; Potential output; Structural vector autoregression; Supply shocks; Inflation; Global; output gaps; real time estimation; business cycles
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We apply a range of models to the U.K. data to obtain estimates of the output gap. A structural VAR with an appropriate identification strategy provides improved estimates of output gap with better real time properties and lower sensitivity to temporary shocks than the usual filtering techniques. It also produces smaller out-of-sample forecast errors for inflation. At the same time, however, our results suggest caution in basing policy decisions on output gap estimates.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund