Discussion paper

DP17111 Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices

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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Citation

Hasenzagl, T, F Pellegrino, l reichlin and G Ricco (eds) (2022), “DP17111 Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices”, CEPR Press Discussion Paper No. 17111. https://cepr.org/publications/dp17111