What Do We Talk About When We Talk About Output Gaps?
IMF Working Papers, November 20, 2020
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- What Do We Talk About When We Talk About Output Gaps?
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Bibliographic details
- Authors: Jelle Barkema, Tryggvi Gudmundsson, Mico Mrkaic
- Published: November 20, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513561257.001
Main findings
- Estimates of output gaps remain central to assessments of the stance of business cycles.
- Historical global output gap estimates show a firm negative skew, consistent with previous regional studies.
- Output gap estimates undergo frequent historical revisions.
- Co-movement analysis finds a positive, but limited, association between output gap estimates and realized measures of slack.
- Text analysis of Fund surveillance reveals no strong bearing of output gap estimates on:
- the coverage of the output gap concept; or
- the direction of policy advice.
- Overall conclusion: continued caution is warranted in relying on output gaps for real-time policymaking and policy assessment.
Methods used
- Historical record analysis of global output gap estimates.
- Co-movement analysis between output gap estimates and realized measures of slack.
- Text analysis techniques applied to IMF Fund surveillance documents to assess usage and influence of output gap estimates.
Subject areas and keywords
- Subjects: Balance of payments, Business cycles, Current account balance, Economic growth, Inflation, Output gap, Potential output, Prices, Production
- Keywords: business cycles, Current account balance, delta real-time output gap, fiscal policy, Global, Inflation, monetary policy, Output gap, output gap coverage, output gap estimate, output gap measurement error, output gap uncertainty, Output gaps, output gaps discussion, overestimated output gap, Potential output, underestimated output gap, WP
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- Working Paper