Trend-Cycle Decomposition of Output and Euro Area Inflation Forecasts: A Real-Time Approach Based on Model Combination

Guérin, Pierre; Maurin, Laurent; Mohr, Matthias

doi:10.1017/s1365100513000461

Cited by 9 publications

(8 citation statements)

References 47 publications

(72 reference statements)

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“…Gurin, Maurin and Mohr (2015) find smaller estimated coefficients for φ 1 and φ 2 in a Markov-switching specification of the output trend than the choice made in this paper.…”

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confidence: 81%

An output gap measure for the euro area: Exploiting country-level and cross-sectional data heterogeneity

González‐Astudillo

2019

European Economic Review

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This paper proposes a methodology to estimate the euro-area output gap by taking advantage of two types of data heterogeneity. On the one hand, the method uses information on real GDP, inflation, and the unemployment rate for each member state; on the other hand, it jointly considers this information for all the euro-area countries to extract an area-wide output gap measure. The setup is an unobserved components model that theorizes a common cycle across euro-area economies in addition to countryspecific cyclical components. I estimate the model with Bayesian methods using data for the 19 countries of the euro area from 2000:Q1 through 2017:Q2 and perform model comparisons across different specifications of the output trend. The estimation of the model preferred by the data indicates that, because of negative shocks to trend output during the global financial crisis, output remained slightly above potential in that period, but an output gap of about negative 3 1 ⁄2 percent emerged during the European debt crisis. At the end of the sample period, output is estimated to be about 1 percent above potential.

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“…Gurin, Maurin and Mohr (2015) find smaller estimated coefficients for φ 1 and φ 2 in a Markov-switching specification of the output trend than the choice made in this paper.…”

contrasting

confidence: 81%

An output gap measure for the euro area: Exploiting country-level and cross-sectional data heterogeneity

González‐Astudillo

2019

European Economic Review

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“…The bandpass filter is also two-sided and the correlations of its measure of the output gap with future output growth and future inflation are very similar to those for the two-sided HP filter at −0.54 and 0.32, respectively. A full analysis of real-time out-of-sample forecasting performance of different measures of the output gap such as in Guérin, Maurin, and Mohr (2015) and would be worth exploring, but is left to future research given challenges in accounting for data revisions for such a large dataset. parametrized.…”

Section: Application To the Us Output Gapmentioning

confidence: 99%

Estimating and accounting for the output gap with large Bayesian vector autoregressions

Morley

Wong

2019

J of Applied Econometrics

121

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Summary We consider how to estimate the trend and cycle of a time series, such as real gross domestic product, given a large information set. Our approach makes use of the Beveridge–Nelson decomposition based on a vector autoregression, but with two practical considerations. First, we show how to determine which conditioning variables span the relevant information by directly accounting for the Beveridge–Nelson trend and cycle in terms of contributions from different forecast errors. Second, we employ Bayesian shrinkage to avoid overfitting in finite samples when estimating models that are large enough to include many possible sources of information. An empirical application with up to 138 variables covering various aspects of the US economy reveals that the unemployment rate, inflation, and, to a lesser extent, housing starts, aggregate consumption, stock prices, real money balances, and the federal funds rate contain relevant information beyond that in output growth for estimating the output gap, with estimates largely robust to substituting some of these variables or incorporating additional variables.

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“…Thus, a potentially fruitful line of research can be to try to identify what types of non-neutrality are relevant for each economy using, for example, long-run non-neutral Blanchard-Quah decompositions as in Keating (49) and trend-cycle decomposition models that incorporate the possibility of regime switches as in Guérin et al (38). Micro level studies exploring the different mechanisms relating recessions and expansions and productivity are also particularly relevant in order to distinguish the impact of business cycles in terms of level and in terms of the long-term growth path.…”

Section: Discussionmentioning

confidence: 99%

“…Pedersen and Elmer (2003) compared dates of business cycle turning points with dates of estimated trend breaks for 16 OECD countries, finding evidence of deterministic shifting and/or segmented time trends for all countries, and that more than 82% of the estimated trend breaks occur near a turning point. The quantile autoregression unit root test employed by Hosseinkouchack and Wolters (2013) shows that shocks have permanent persistent negative effects on U.S. GDP-especially large recessionary ones; whereas the estimations of univariate and multivariate trend-cycle decomposition models of GDP by Guérin et al (2015) show evidence of regime changes in the growth of potential output for a few recession periods around 1974 and 2008 in the euro area.…”

Section: Empirical Literaturementioning

confidence: 99%

On the Interaction Between Economic Growth and Business Cycles

Mendieta‐Muñoz

2016

Macroecon. Dynam.

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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 AbstractThe present paper studies the interaction between short-run fluctuations and economic growth by presenting empirical evidence of the impact of business cycle fluctuations on the rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 OECD countries during the period 1981-2011. The results of both parametric (OLS and a panel estimator that allows for parameter heterogeneity and cross section dependence) and non-parametric (a penalized regression spline estimator) econometric techniques show that this measure of potential output experiences positive (negative) changes in periods of high (low) growth in the majority of countries, and, hence, that business cycles fluctuations have statistically significant effects on potential output. However, in contrast to the sample of OECD countries, less than half of the sample of Latin American countries experience statistically significant changes of this measure of potential output in periods of low growth.JEL Classification: E32,O40,O51,O54 Keywords: growth and cycles, potential rate of growth, rate of growth consistent with a constant unemployment rate.

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Trend-Cycle Decomposition of Output and Euro Area Inflation Forecasts: A Real-Time Approach Based on Model Combination

Abstract: In 2011 all ECB publications feature a motif taken from the €100 banknote. Abstract 4 Non-technical summary 5 © European Central

Cited by 9 publications

References 47 publications

An output gap measure for the euro area: Exploiting country-level and cross-sectional data heterogeneity

An output gap measure for the euro area: Exploiting country-level and cross-sectional data heterogeneity

Estimating and accounting for the output gap with large Bayesian vector autoregressions

On the Interaction Between Economic Growth and Business Cycles

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