Which Output Gap Estimates Are Stable in Real Time and Why?
Year: 2020
Type: article
Abstract: Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We aim to understand the real-time instability of output gap estimates by comparing a suite of reduced-form models. We propose a new statistical decomposition and find that including a Okun’s law relationship improves real-time stability by alleviating the end-point problem. Models that include the unemployment rate also produce output gaps with relevant economic content. However, we find that no model of the output gap is clearly superior to the others along each metric we consider.
Institutions: Federal Reserve, Federal Reserve Board of Governors
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W3110738867