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Did output gap measurement improve over time?

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  • Chiu, Adrian

    (Monetary Policy Committee Unit, Bank of England)

  • Wieladek, Tomasz

    (Monetary Policy Committee Unit, Bank of England)

Abstract

We study whether the accuracy of real-time estimates of the output gap produced by the OECD has improved over time by examining a panel dataset on real-time output gap revisions for 15 countries from 1991 Q1 — 2005 Q4. We use a simple panel data regression and a state space model, with common and country-specific factors, to assess whether the mean of the absolute value of output gap revisions has changed. We also apply a Mincer-Zarnowitz regression to determine whether the composition of measurement errors has shifted. Surprisingly, we do not find evidence that the size of output gap revisions has decreased over time; on the contrary, they seem to have increased. But the fraction of measurement errors due to omitted contemporaneous information has declined. This suggests that while the OECD’s accuracy in output gap measurement has failed to improve, its estimates are becoming less noisy.

Suggested Citation

  • Chiu, Adrian & Wieladek, Tomasz, 2012. "Did output gap measurement improve over time?," Discussion Papers 36, Monetary Policy Committee Unit, Bank of England.
    • Handle: RePEc:mpc:wpaper:0036
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    References listed on IDEAS

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    Cited by:

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    2. Ferdinandusse, Marien & Checherita-Westphal, Cristina & Attinasi, Maria Grazia & Lalouette, Laure & Bańkowski, Krzysztof & Palaiodimos, Georgios & Trindade Campos, Maria Manuel, 2017. "Euro area fiscal stance," Occasional Paper Series 182, European Central Bank.

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    More about this item

    Keywords

    Output gap; real-time data; dynamic common factor model;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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