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Forecasting Trend Output in the Euro Area

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  • Schumacher, Christian

Abstract

This paper is an applied study about forecasting trend output and the output gap in the Euro area. The need for trend output forecasts is justified by an analysis of the monetary strategy of the European Central Bank. Trend output serves as a direct inflation indicator and helps to determine the reference value for money. For both purposes, trend output has to be forecasted. A permanent-transitory decomposition based on cointegration restrictions gives an estimate of trend output in the Euro area. Ex-ante point forecasts of trend output are computed and bootstrap simulation is employed to construct prediction intervals that take estimation uncertainty into consideration. The uncertainty of trend output and the output gap is quite large and raises questions about their usefulness as indicators for monetary policy. Copyright © 2002 by John Wiley & Sons, Ltd.

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  • Schumacher, Christian, 2002. "Forecasting Trend Output in the Euro Area," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(8), pages 543-558, December.
    • Handle: RePEc:jof:jforec:v:21:y:2002:i:8:p:543-58
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    1. Weinert, Gunter & Wohlers, Eckhardt & Bruck, Christiane & Feldkord, Eva-Ulrike & Hinze, Jorg & Kirchesch, Kai & Matthies, Klaus, 2005. "Konjunktur 2005: Weltwirtschaft bleibt auf Expansionskurs - Deutschland hinkt hinterher," Report Series 26115, Hamburg Institute of International Economics.
    2. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(3), pages 310-332.
    3. Weinert, Günter & Wohlers, Eckhardt & Brück, Christiane & Feldkord, Eva-Ulrike & Hinze, Jörg & Kirchesch, Kai & Matthies, Klaus, 2005. "Konjunktur 2005: Weltwirtschaft bleibt auf Expansionskurs - Deutschland hinkt hinterher," HWWA Reports 251, Hamburg Institute of International Economics (HWWA).
    4. Döpke, Jörg, 2004. "Real-time data and business cycle analysis in Germany," Discussion Paper Series 1: Economic Studies 2004,11, Deutsche Bundesbank.
    5. Gradzewicz, Michal & Kolasa, Marcin, 2004. "Estimating the output gap in the Polish economy: the VECM approach," MPRA Paper 28227, University Library of Munich, Germany.

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