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

Thomas Hasenzagl , Filippo Pellegrino , Lucrezia Reichlin , Giovanni Ricco (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

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 for the US: 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 for tracking them in real time.

Keywords: Real-time forecasting; output gap; Phillips curve; semi-structural models; Bayesian estimation

Domains: Quantitative Finance [q-fin]

Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin, Giovanni Ricco. Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices. 2022. ⟨hal-03573080⟩