Can inflation data improve the real‐time reliability of output gap estimates?

Planas, Christophe; Rossi, Alessandro

doi:10.1002/jae.726

Cited by 25 publications

(18 citation statements)

References 32 publications

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“…Kuttner (1994) and Planas and Rossi (2004) argue that the link between inflation and the output gap, as reflected in the Phillips curve, may be exploited to produce more reliable estimates of the output gap. Thus, an unobserved components model for GDP is combined with an equation in which inflation depends on lagged values of the output gap, as measured by the cycle in GDP.…”

Section: Inflation and The Output Gapmentioning

confidence: 98%

Trends and cycles in economic time series: A Bayesian approach

Harvey

Trimbur

Dijk

2007

Journal of Econometrics

105

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Trends and cyclical components in economic time series are modeled in a Bayesian framework. This enables prior notions about the duration of cycles to be used, while the generalized class of stochastic cycles employed allows the possibility of relatively smooth cycles being extracted. The posterior distributions of such underlying cycles can be very informative for policy makers, particularly with regard to the size and direction of the output gap and potential turning points. From the technical point of view a contribution is made in investigating the most appropriate prior distributions for the parameters in the cyclical components and in developing Markov chain Monte Carlo methods for both univariate and multivariate models. Applications to US macroeconomic series are presented. r

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Section: Inflation and The Output Gapmentioning

confidence: 98%

Trends and cycles in economic time series: A Bayesian approach

Harvey

Trimbur

Dijk

2007

Journal of Econometrics

105

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“…The most prominent attempts involve expanding the information set supplied to the filter in the temporal dimension, using either model-based forecasts (Kaiser and Maravall, 1999;Gomez, 2001;Kaiser and Maravall, 2001;Mise et al, 2005), or variables observed at a higher frequency (Aruoba et al, 2009); in the covariates dimension with the employment of model-based multivariate representations (Planas and Rossi, 2004; Valle e Azevedo et al, 2006;Altissimo et al, 2010;Valle e Azevedo, 2011;Marcellino and Musso, 2011), or jointly in both of these dimensions (Garratt et al, 2008;Clements and Galvão, 2012).…”

Section: Introductionmentioning

confidence: 99%

Improving the Reliability of Real-Time Hodrick-Prescott Filtering Using Survey Forecasts

Galimberti

Moura

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Insper -Institute of Education and Research AbstractMeasuring economic activity in real-time is a crucial issue in applied research and in the decision-making process of policy makers; however, it also poses intricate challenges to statistical filtering methods that are built to operate optimally under the auspices of an infinite number of observations. In this paper, we propose and evaluate the use of survey forecasts to augment one of those methods, namely the largely used Hodrick-Prescott filter so as to attenuate the end-of-sample uncertainty observed in the resulting gap estimates. We find that this approach achieves powerful improvements to the real-time reliability of these economic activity measures, and we argue that the use of surveys is preferable relative to model-based forecasts due to both an usually superior accuracy in predicting current and future states of the economy and its parsimony.

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“…Second, data revisions contribute to imprecision in real time estimates of the equilibrium real rate. Data revisions account for roughly 100-200 basis points of revisions to less recent estimates of the equilibrium (2004), Gruen, Robinson, and Stone (2002), Kamada (2004), Planas andRossi (2004), andRunstler (2002). Still other studies have examined the implications for monetary policy.…”

Section: Lists Of Tables and Figuresmentioning

confidence: 99%

Estimating Equilibrium Real Interest Rates in Real Time

Clark

Kozicki

2004

SSRN Journal

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Abstract:We use a range of simple models and 22 years of real-time data vintages for the U.S. to assess the difficulties of estimating the equilibrium real interest rate in real time. Model specifications differ according to whether the time-varying equilibrium real rate is linked to trend growth, and whether potential output and growth are defined by the CBO's estimates or treated as unobserved variables. Our results reveal a high degree of specification uncertainty, an important one-sided filtering problem, and considerable imprecision due to data uncertainty. Also, the link between trend growth and the equilibrium real rate is shown to be quite weak. Overall, we conclude that statistical estimates of the equilibrium real rate will be difficult to use reliably in practical policy applications. Keywords:real-time-data; time-varying parameter; Kalman filter; trend growth JEL-Classification: C5, E4, C3, E52 Non Technical SummaryThe equilibrium real interest rate -the rate consistent with stable inflation and output equal to potential -has come to play a key role in monetary policy. For example, using a policy rule such as that suggested by Taylor (1993) to evaluate or guide policy requires an estimate of the equilibrium real rate, or natural rate of interest. According to basic economic theory, the equilibrium real rate is a function of the trend growth rate of output. If the trend growth rate varies over time, so, too, does the natural rate of interest. Some models or theories also link the equilibrium real interest rate to consumer preferences or fiscal policy.Prior studies have estimated the equilibrium real rate from models of the relationship between the output gap (the difference between actual and potential output) and real interest rates. These existing estimates of historical time series on the equilibrium real rate are based on the data available today. Over time, though, economic data are often substantially revised. For this and other reasons, estimates of the equilibrium real rate made in real time could differ substantially from estimates obtained with subsequently revised data.In this paper we use a range of simple models and 22 years of real-time data vintages for the United States to assess the difficulties of estimating the equilibrium real interest rate in real time. Our results reveal a high degree of uncertainty associated with the details of the model specification, considerable imprecision due to data uncertainty, and even more imprecision associated with having to base real time estimates on only past, rather than past and future, data. Moreover, the link between trend growth and the equilibrium real rate is shown to be quite weak. Overall, we conclude that statistical estimates of the equilibrium real rate will be difficult to use reliably in practical monetary policy applications. Nicht technische ZusammenfassungDer gleichgewichtige Realzins -der Zinssatz, der mit stabiler Inflation und einer dem

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Can inflation data improve the real‐time reliability of output gap estimates?

Cited by 25 publications

References 32 publications

Trends and cycles in economic time series: A Bayesian approach

Trends and cycles in economic time series: A Bayesian approach

Improving the Reliability of Real-Time Hodrick-Prescott Filtering Using Survey Forecasts

Estimating Equilibrium Real Interest Rates in Real Time

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