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Measuring Output Gap: Is It Worth Your Time?

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  • Mr. Jiaqian Chen
  • Lucyna Gornicka

Abstract

We apply a range of models to the U.K. data to obtain estimates of the output gap. A structural VAR with an appropriate identification strategy provides improved estimates of output gap with better real time properties and lower sensitivity to temporary shocks than the usual filtering techniques. It also produces smaller out-of-sample forecast errors for inflation. At the same time, however, our results suggest caution in basing policy decisions on output gap estimates.

Suggested Citation

  • Mr. Jiaqian Chen & Lucyna Gornicka, 2020. "Measuring Output Gap: Is It Worth Your Time?," IMF Working Papers 2020/024, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/024
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    Cited by:

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    3. Cobus Vermeulen, 2023. "The inherent uncertainties in output gap estimation a South African perspective," Working Papers 11051, South African Reserve Bank.
    4. Remzi Baris Tercioglu, 2020. "A sectoral approach to measuring output gap: Evidence from 20 US sectors over 1948-2019," Working Papers 2012, New School for Social Research, Department of Economics, revised Jun 2021.
    5. Nataliia Ostapenko, 2022. "Do output gap estimates improve inflation forecasts in Slovakia?," Working and Discussion Papers WP 4/2022, Research Department, National Bank of Slovakia.

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