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Title: Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices

Author(s): Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco

Publication Date: March 2022

Keyword(s): Bayesian estimation, Output gap, Phillips curve, Real-time forecasting and semi-structural models

Programme Area(s): Monetary Economics and Fluctuations

Abstract: A mixed-frequency semi-structural model is used for estimating unobservable quantities such as the output gap, the Phillips curve and the NAIRU in real time. We consider two specifications: in one the output gap is observed as the official CBO measure, in the other is unobserved and derived via minimal theory-based restrictions. We find that the CBO model implies a smoother trend output but the second model better captures the business cycle dynamics of nominal and real variables. The methodology offers both a framework for evaluating official estimates of unobserved quantities of economic interest and tracking them in real time.

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Bibliographic Reference

Hasenzagl, T, Pellegrino, F, Reichlin, L and Ricco, G. 2022. 'Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=17111