Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154399
Authors: 
Jarociński, Marek
Lenza, Michele
Year of Publication: 
2016
Series/Report no.: 
ECB Working Paper 1966
Abstract: 
Using a small Bayesian dynamic factor model of the euro area we estimate the deviations of output from its trend that are consistent with the behavior of inflation. We label these deviations the output gap. In order to pin-down the features of the model, we evaluate the accuracy of real-time inflation forecasts from different model specifications. The version that forecasts inflation best implies that after the 2011 sovereign debt crisis the output gap in the euro area has been much larger than the official estimates. Versions featuring a secular-stagnation-like slowdown in trend growth, and hence a small output gap after 2011, do not adequately capture the inflation developments.
Subjects: 
factor model
inflation forecast
output gap
Phillips curve
JEL: 
C32
C53
E31
E32
E37
Document Type: 
Working Paper

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