Discussion Paper Details

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Title: The Forecasting Performance of Real Time Estimates of the Euro Area Output Gap

Author(s): Massimiliano Marcellino and Alberto Musso

Publication Date: March 2010

Keyword(s): data revisions, euro area, inflation forecasts, Output gap, real GDP forecasts and real-time data

Programme Area(s): International Macroeconomics

Abstract: This paper provides real time evidence on the usefulness of the euro area output gap as a leading indicator for inflation and growth. A genuine real-time data set for the euro area is used, including vintages of several alternative gap estimates. It turns out that, despite some difference across output gap estimates and forecast horizons, the results point clearly to a lack of any usefulness of real-time output gap estimates for inflation forecasting both in the short term (one-quarter and one-year ahead) and the medium term (two-year and three-year ahead). By contrast, we find some evidence that several output gap estimates are useful to forecast real GDP growth, particularly in the short term, and some appear also useful in the medium run. A comparison with the US yields similar conclusions.

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Bibliographic Reference

Marcellino, M and Musso, A. 2010. 'The Forecasting Performance of Real Time Estimates of the Euro Area Output Gap'. London, Centre for Economic Policy Research.