Using Real-Time Output Gaps to Examine Past and Future Policy Choices

2009 ◽  
Vol 210 ◽  
pp. 98-110 ◽  
Author(s):  
Christopher Adam ◽  
David Cobham
Keyword(s):  
Real Time ◽  
Time Estimation ◽  
Output Gap ◽  
Reaction Functions ◽  
Other Information ◽  
Alternative Measures ◽  
The Business Cycle ◽  
Future Policy ◽  
The Uk ◽  
Output Gaps

Alternative measures of the UK output gap are considered for 1984–2007. The real-time series is strongly affected by the rolling-time estimation of the trend, and produces a picture of the business cycle which is not consistent with contemporary perceptions of the large fluctuations of the late 1980s and early 1990s. A new, ‘nearly-real’, measure developed here may be better for estimating historical reaction functions. In the context of the current recession, none of these mechanically derived measures of the output gap are useful. Policymakers should make careful estimates of the likely fall in potential output on the basis of other information.

Real time representation of the UK output gap in the presence of model uncertainty

2009 ◽  
Vol 25 (1) ◽  
pp. 81-102 ◽  
Author(s):  
Anthony Garratt ◽  
Kevin Lee ◽  
Emi Mise ◽  
Kalvinder Shields
Keyword(s):  
Real Time ◽  
Model Uncertainty ◽  
Output Gap ◽  
Time Representation ◽  
The Uk

scholarly journals Industrial Electricity Usage and Stock Returns

2017 ◽  
Vol 52 (1) ◽  
pp. 37-69 ◽  
Author(s):  
Zhi Da ◽  
Dayong Huang ◽  
Hayong Yun
Keyword(s):  
Growth Rate ◽  
Asset Pricing ◽  
Business Cycle ◽  
Stock Returns ◽  
Real Time ◽  
Risk Premium ◽  
Output Gap ◽  
Financial Variables ◽  
The Future ◽  
The Business Cycle

The growth rate of industrial electricity usage predicts future stock returns up to 1 year with an R2 of 9%. High industrial electricity usage today predicts low stock returns in the future, consistent with a countercyclical risk premium. Industrial electricity usage tracks the output of the most cyclical sectors. Our findings bridge a gap between the asset pricing literature and the business cycle literature, which uses industrial electricity usage to gauge production and output in real time. Industrial electricity growth compares favorably with traditional financial variables, and it outperforms Cooper and Priestley’s output gap measure in real time.

Have UK and Eurozone Business Cycles Become More Correlated?

2002 ◽  
Vol 182 ◽  
pp. 58-71 ◽  
Author(s):  
Michael Massmann ◽  
James Mitchell
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Industrial Production ◽  
Production Data ◽  
Alternative Measures ◽  
The Business Cycle ◽  
The Uk ◽  
The Relationship ◽  
Historical Levels ◽  
Sustained Increase

Recent estimates suggest that the UK business cycle is closer to the Eurozone business cycle than it was in the early 1990s. This paper investigates whether this phenomenon has been accompanied by increased correlation between UK and Eurozone business cycles. Considering a range of alternative measures of the business cycle we find, using 40 years of monthly industrial production data, no clear evidence for a sustained increase in correlation between UK and Eurozone business cycles. Instead, in the 1990s, the correlation between UK and Eurozone business cycles has been volatile relative to historical levels. It is only recently, i.e. since 1997, that the UK has become more correlated with the Eurozone, although the level of correlation is lower than against non-Eurozone countries. Importantly, the strength of these relationships is sensitive to how the business cycle is measured. Care should therefore be exercised when using business cycles estimates to test the relationship between UK and Eurozone business cycles.

The World Economy

2004 ◽  
Vol 189 ◽  
pp. 8-36
Keyword(s):  
Euro Area ◽  
Commodity Prices ◽  
Output Gap ◽  
Inflation Expectations ◽  
Global Recession ◽  
Percentage Points ◽  
The Us ◽  
To Come ◽  
The Uk ◽  
Output Gaps

Global inflationary pressures have been building over the last 12 months. These rising pressures reflect emergence from the global recession of 2001–2 and fiscal laxity in several of the world's largest economies, as well as a number of temporary factors such as rising commodity prices and indirect tax increases. Inflation expectations, as reflected by yield differences between indexed and ordinary government debt, have edged up in the US, the Euro Area and the UK, as illustrated in Chart 1. US and UK inflation expectations are about 0.8 percentage points higher than at the start of 2003, while Euro Area inflation expectations have risen by about 0.4 percentage points. Our inflation projections for the major economies are reported in Table 1. We forecast an acceleration of inflation in the US, Germany, France and the UK this year relative to 2003, and expect deflation in Japan to come to an end from the middle of 2004. Stronger inflationary pressures in the US partly reflect the positive output gap, while output gaps in Canada and the Euro Area are expected to remain negative until the end of 2005 and 2006, respectively. Our output gap estimates are illustrated in Chart 2.

scholarly journals How Informative Are Real Time Output Gap Estimates in Europe?

2019 ◽  
Vol 19 (200) ◽  
Author(s):  
Alvar Kangur ◽  
Koralai Kirabaeva ◽  
Jean-Marc Natal ◽  
Simon Voigts
Keyword(s):  
Fiscal Policy ◽  
Real Time ◽  
Euro Area ◽  
Public Debt ◽  
Output Gap ◽  
Potential Growth ◽  
Potential Capacity ◽  
Output Gaps ◽  
The Imf

We study the properties of the IMF-WEO estimates of real-time output gaps for countries in the euro area as well as the determinants of their revisions over 1994-2017. The analysis shows that staff typically saw economies as operating below their potential. In real time, output gaps tend to have large and negative averages that are largely revised away in later vintages. Most of the mis-measurement in real time can be explained by the difficulty in predicting recessions and by overestimation of the economy’s potential capacity. We also find, in line with earlier literature, that real-time output gaps are not useful for predicting inflation. In addition, countries where slack (and potential growth) is overestimated to a larger extent primary fiscal balances tend to be lower and public debt ratios are higher and increase faster than projected. Previous research suggests that national authorities’ real-time output gaps suffer from a similar bias. To the extent these estimates play a role in calibrating fiscal policy, over-optimism about long-term growth could contribute to excessive deficits and debt buildup.

scholarly journals What Do We Talk About When We Talk About Output Gaps?

2020 ◽  
Vol 20 (259) ◽  
Author(s):  
Jelle Barkema ◽  
Tryggvi Gudmundsson ◽  
Mico Mrkaic
Keyword(s):  
Business Cycles ◽  
Real Time ◽  
Text Analysis ◽  
Historical Record ◽  
Policy Advice ◽  
Output Gap ◽  
Regional Studies ◽  
Policy Assessment ◽  
Analysis Techniques ◽  
Output Gaps

Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.

scholarly journals Which Output Gap Estimates Are Stable in Real Time and Why?

2020 ◽  
Vol 2020 (101) ◽  
pp. 1-32
Author(s):  
Alessandro Barbarino ◽  
◽  
Travis J. Berge ◽  
Han Chen ◽  
Andrea Stella ◽  
...  
Keyword(s):  
Real Time ◽  
Unemployment Rate ◽  
Reduced Form ◽  
Output Gap ◽  
Point Problem ◽  
Time Stability ◽  
The Real ◽  
End Point ◽  
Output Gaps ◽  
Real Time Stability

Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We aim to understand the real-time instability of output gap estimates by comparing a suite of reduced-form models. We propose a new statistical decomposition and find that including a 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. However, we find that no model of the output gap is clearly superior to the others along each metric we consider.

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