Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269123 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2716
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We estimate the euro area output gap by applying the Beveridge-Nelson decomposition based on a large Bayesian vector autoregression. Our approach incorporates multivariate information through the inclusion of a wide range of variables in the analysis and addresses data issues associated with the COVID-19 pandemic. The estimated output gap lines up well with the CEPR chronology of the business cycle for the euro area and we find that hours worked, more than the unemployment rate, provides the key source of information about labor utilization in the economy, especially in pinning down the depth of the output gap during the COVID-19 recession when the unemployment rate rose only moderately. Our findings suggest that labor market adjustments to the business cycle in the euro area occur more through the intensive, rather than extensive, margin.
Subjects: 
Beveridge-Nelson decomposition
output gap
Bayesian estimation
multivariate information
JEL: 
C18
E17
E32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5303-0
Document Type: 
Working Paper

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