Ghostbusting Which Output Gap Measure Really Matters? |
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Author:
| Billmeier, Andreas |
Series title: | IMF Working Papers |
ISBN: | 978-1-4623-1860-5 |
Publication Date: | Aug 2004 |
Publisher: | International Monetary Fund
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Book Format: | Ebook |
List Price: | USD $7.50 |
Book Description:
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This paper investigates various output gap measures in a simple inflation forecasting framework. Reflecting the cyclical position of an economy, an (unobservable) output gap has important implications for economic analysis. I construct and compare common output gap measures for five European countries. Since output above potential reflects domestic inflationary pressures, including a gap could improve the accuracy of autoregressive inflation forecasting. This assertion is tested in a...
More DescriptionThis paper investigates various output gap measures in a simple inflation forecasting framework. Reflecting the cyclical position of an economy, an (unobservable) output gap has important implications for economic analysis. I construct and compare common output gap measures for five European countries. Since output above potential reflects domestic inflationary pressures, including a gap could improve the accuracy of autoregressive inflation forecasting. This assertion is tested in a simple simulated out-of-sample forecasting exercise for the period 1990-2002. the main conclusions are that an output gap rarely provides useful information and that there is no single best output gap measure across countries.