An Exploration of Real-Time Revisions of Output Gap Estimates Across European Countries

26 Pages Posted: 28 Jul 2016

See all articles by Pablo Hernández de Cos

Pablo Hernández de Cos

Banco de España

Aitor Lacuesta

Banco de España

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Date Written: July 28, 2016

Abstract

This document analyses real-time revisions in output gap estimates published by the European Commission for 15 countries over the period 2002-2014. We find that output gap revisions (both in levels and changes) are mainly driven by GDP growth forecast errors. Also, output gap revisions have opposite signs across expansions and recessions: real-time output gaps are downward biased (smaller than the final estimates) during expansions and upward biased (higher than the final estimates) in recessions. Our findings may have relevant implications for the conduct and assessment of fiscal policy in real time. For instance, according to our results, real-time estimates of the structural balance would be upward biased in expansions and downward biased in recessions. This implies that the fiscal stance of an economy estimated in real time would be excessively expansionary in recessions as compared to the final estimate. As a result, we argue that corrections to real-time estimates of the structural balance suggested in the literature should be contingent on the degree of slack in the economy.

Keywords: output-gaps, real-time data, fiscal policy

JEL Classification: E32, E52, E60

Suggested Citation

Hernández de Cos, Pablo and Lacuesta, Aitor and Moral-Benito, Enrique, An Exploration of Real-Time Revisions of Output Gap Estimates Across European Countries (July 28, 2016). Banco de Espana Occasional Paper No. 1605. Available at SSRN: https://ssrn.com/abstract=2815346 or http://dx.doi.org/10.2139/ssrn.2815346

Pablo Hernández de Cos (Contact Author)

Banco de España ( email )

Madrid, 28014
Spain

Aitor Lacuesta

Banco de España ( email )

Madrid 28014
Spain

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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