The Information Content of Capacity Utilisation Rates for Output Gap Estimates

30 Pages Posted: 14 Dec 2010

See all articles by Michael Graff

Michael Graff

ETH Zurich

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 13, 2010

Abstract

From a theoretical perspective, the output gap is probably the most comprehensive and convincing concept to describe the cyclical position of an economy. Unfortunately, for practical purposes, the concept depends on the determination of potential output, which is an inherently unobservable variable. In this paper, we examine whether the real-time estimates of the output gap as published by the OECD can be improved by referring to measures of physical capital capacity utilisation from business tendency surveys. These data relate directly to the stress on the current capacity to produce goods and services and are not revised. Our real-time panel data set comprises 22 countries at an annual frequency with data vintages from 1995 to 2009. We show that the real-time output gaps are informationally inefficient in the sense that survey data available in real time can help produce estimates that are significantly closer to later releases of output gap estimates.

Keywords: output gap, capacity utilisation, real-time analysis, survey data

JEL Classification: D24, E32, E37

Suggested Citation

Graff, Michael and Sturm, Jan-Egbert, The Information Content of Capacity Utilisation Rates for Output Gap Estimates (December 13, 2010). CESifo Working Paper Series No. 3276. Available at SSRN: https://ssrn.com/abstract=1724590

Michael Graff

ETH Zurich ( email )

KOF Swiss Economic Institute
Leonhardstrasse 21
CH-8092 Zurich, 8092
Switzerland

Jan-Egbert Sturm (Contact Author)

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

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