Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153818 
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper No. 1384
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
The paper focuses on the estimation of the euro area output gap. We construct model-averaged measures of the output gap in order to cope with both model uncertainty and parameter instability that are inherent to trend-cycle decomposition models of GDP. We first estimate nine models of trend-cycle decomposition of euro area GDP, both univariate and multivariate, some of them allowing for changes in the slope of trend GDP and/or its error variance using Markov-switching specifications, or including a Phillips curve. We then pool the estimates using three weighting schemes. We compute both ex-post and real-time estimates to check the stability of the estimates to GDP revisions. We finally run a forecasting experiment to evaluate the predictive power of the output gap for inflation in the euro area. We find evidence of changes in trend growth around the recessions. We also find support for model averaging techniques in order to improve the reliability of the potential output estimates in real time. Our measures help forecasting inflation over most of our evaluation sample (2001-2010) but fail dramatically over the last recession.
Subjects: 
auxiliary information
inflation forecast
Kalman filter
Markov-switching
model averaging
Phillips curve
real-time analysis
trend-cycle decomposition
unobserved components model
JEL: 
C53
E32
E37
Document Type: 
Working Paper

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