Finding the Gap: Output Gap Measurement in the Euro Area


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Potential output and the output gap play an essential role—both in theory and in practice— in evaluating the state of an economy as well as in forming and assessing macroeconomic policies. For example, the output gap is often considered a measure of inflationary pressures in the economy. And potential output and the output gap help observers assess whether the source of economic growth is a change in long-run trends or is, instead, due to cyclical factors. Despite its importance as a measure of aggregate macroeconomic conditions and inflationary pressures, the output gap is unobservable, which forces researchers and policymakers to depend on estimates. The tools available to extract unobservable variables are typically statistical and, hence, may correspond imperfectly with the concept of gaps in the economic models that are used to interpret them.

With these in mind, the Euro Area Business Cycle Dating Committee is organising a conference on potential output and output gap measurement. The workshop is calling for papers that can shed light on how theoretical and statistical concepts of potential output and the output gap relate and how to measure them in practice. The focus is the Euro Area—either taken as a whole or, possibly, for different constituent countries. It would also be of great interest to the committee to have estimates on the relationship between cyclical fluctuations extracted with different methods and gaps.