Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209914 
Year of Publication: 
2008
Series/Report no.: 
Working Paper No. 2008/23
Publisher: 
Norges Bank, Oslo
Abstract: 
An approximate dynamic factor model can substantially improve the reliability of real time output gap estimates. The model extracts a common component from macroeconomic indicators, which reduces errors in the gap due to data revisions. The model's ability to handle the unbalanced arrival of data, also yields favorable nowcasting properties and thus starting conditions for the filtering of data into trend and deviations from trend. Combined with the method of augmenting data with forecasts prior to filtering, this greatly reduces the end-of-sample imprecision in the gap estimate. The increased precision has economic significance for real time policy decisions.
Subjects: 
output gap
real time analysis
monetary policy
forecasting
factor model
JEL: 
C33
C53
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-477-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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