Measuring US Aggregate Output and Output Gap Using Large Datasets

Abstract

We propose new measures of US aggregate output and output gap computed by means of a Non-Stationary Dynamic Factor model estimated on a large dataset of macroeconomic indicators, combined with a non-parametric Trend-Cycle decomposition of the factors. We find that: (i) since 2010 output growth was on average 0.4% higher than measured by GDP, the difference being been concentrated in the first quarter of the year; (ii) while for several consecutive years before the financial crisis the economy operated above its potential, as of 2017:Q4 there is still slack in the economy. Both our measures are robust to data revisions.

Keywords: Gross Domestic Output, Output Gap, Non-stationary Approximate Dynamic Factor Model, Trend-Cycle Decomposition

JEL Classification: C32, C38, C55, E0