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What Do We Talk About When We Talk About Output Gaps?
Author:
Jelle Barkema null

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,
Tryggvi Gudmundsson
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Mr. Mico Mrkaic
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 259
Language:
English
Publication Date:
20 Nov 2020
DOI:
https://doi.org/10.5089/9781513561257.001
ISBN:
9781513561257
ISSN:
1018-5941
Pages:
39
Keywords:
Output gaps; monetary policy; fiscal policy; WP; output gap estimate; delta real-time output gap; output gap uncertainty; output gaps discussion; output gap coverage; output gap measurement error; overestimated output gap; business cycles; underestimated output gap; Output gap; Potential output; Inflation; Current account balance; Global
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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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Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund