A New Methodology for a Quarterly Measure of the Output Gap
Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 6
34 Pages Posted: 10 Aug 2013
Date Written: August 7, 2013
This paper presents a new mixed frequency methodology to estimate output gaps and potential output on a quarterly basis. The methodology strongly relies on the production function method commonly agreed at the European level (D'Auria et. al., 2010) but it significantly improves it allowing to assess the impact of real time forecast for GDP and other underlying variables. This feature of the model is particularly welcome in the current Italian budgetary framework which has foreseen the introduction of the principle of a budget balance in structural terms in the Constitution.
By allowing to measure output gap with a quarterly span on the basis of recent developments indicators, the methodology provides interesting hints on the cyclical position of the economy in real time to be used for deriving cyclically-adjusted fiscal aggregates.
Keywords: output gaps, potential output, mixed frequency models
JEL Classification: E32, E37, C53
Suggested Citation: Suggested Citation