What Is in Your Output Gap? Unified Framework & Decomposition into Observables
IMF Working Papers, May 10, 2013
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- What Is in Your Output Gap? Unified Framework & Decomposition into Observables
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Bibliographic details
- Authors: Michal Andrle
- Published: May 10, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484399552.001
Summary and purpose
- Author: Michal Andrle
- Date: May 10, 2013
- Paper series: Working Paper No. 2013/105
- Issue: 105
- Volume: 2013
- Pages: 45
- DOI: https://doi.org/10.5089/9781484399552.001
- ISBN: 9781484399552
- ISSN: 1018-5941
- Stock No: WPIEA2013105
- Objective: Discuss several popular methods to estimate the ‘output gap’, provide a unified, natural concept for analysis, and demonstrate decomposition of the output gap into contributions of observed data.
Core methodological contributions
- Presents a unified framework that consolidates multiple output gap estimation methods.
- Demonstrates decomposition of the output gap into contributions from observed data on:
- output
- inflation
- unemployment
- other variables
- Introduces a simple bar-chart representation of contributing factors for multi-variable methods to clarify intuition behind estimates and to show explicitly “what is in your output gap.”
- Explains interpretation of data revisions and new data releases for output gap estimates (referred to as news effects).
- Provides methods to obtain insight into real-time properties of estimators.
Key analytical focuses
- Capacity utilization
- Econometric analysis
- Estimation techniques, including:
- least squares
- linear filters
- backward-looking output gap equation
- Inflation and inflation expectations
- Potential output and output gap estimation approaches
- Observable decomposition for multi-variable estimators
- Links to modeling frameworks such as DSGE where relevant
Findings and analytical implications
- Multi-variable methods permit explicit decomposition of the estimated output gap into observable contributing factors, improving interpretability.
- Bar-chart decomposition sharpens intuition behind estimates by attributing portions of the gap to specific observables.
- The framework clarifies how data revisions and new data releases (news effects) affect output gap estimates and enables assessment of real-time estimator behavior.
Keywords and subjects (as listed)
- Keywords: B. output gap estimation, backward-looking output gap equation, Capacity utilization, DSGE, Estimation techniques, Inflation, inflation expectation, least squares, linear filters, observable decomposition, output gap, output gap estimate, output gap estimation approach, output gap estimation method, output gap estimator, Potential output, WP
- Subjects: Capacity utilization, Econometric analysis, Estimation techniques, Inflation, Output gap, Potential output, Prices, Production, Production growth
IMF Working Papers — What Is in Your Output Gap? Unified Framework & Decomposition into Observables, Michal Andrle, May 10, 2013, Working Paper No. 2013/105.