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The stability and economic relevance of output gap estimates

Author

Listed:
  • Alessandro Barbarino
  • Travis J. Berge
  • Andrea Stella

Abstract

Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We provide a comprehensive comparison of real‐time output gap estimates, with the aim of understanding this real‐time instability. Using a statistical decomposition, we find that including 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.

Suggested Citation

  • Alessandro Barbarino & Travis J. Berge & Andrea Stella, 2024. "The stability and economic relevance of output gap estimates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(6), pages 1065-1081, September.
    • Handle: RePEc:wly:japmet:v:39:y:2024:i:6:p:1065-1081
    DOI: 10.1002/jae.3062
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