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    Measuring output gap uncertainty

    Garratt, Anthony and Mitchell, J. and Vahey, S.P. (2009) Measuring output gap uncertainty. Working Paper. Birkbeck College, University of London, London, UK.

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    Abstract

    We propose a methodology for producing density forecasts for the output gap in real time using a large number of vector autoregessions in inflation and output gap measures. Density combination utilizes a linear mixture of experts framework to produce potentially non-Gaussian ensemble densities for the unobserved output gap. In our application, we show that data revisions alter substantially our probabilistic assessments of the output gap using a variety of output gap measures derived from univariate detrending filters. The resulting ensemble produces well-calibrated forecast densities for US inflation in real time, in contrast to those from simple univariate autoregressions which ignore the contribution of the output gap. Combining evidence from both linear trends and more flexible univariate detrending filters induces strong multi-modality in the predictive densities for the unobserved output gap. The peaks associated with these two detrending methodologies indicate output gaps of opposite sign for some observations, reflecting the pervasive nature of model uncertainty in our US data.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0909
    Keyword(s) / Subject(s): Output gap uncertainty, Density combination, Ensemble Forecasting, VAR models
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 10 Jul 2013 13:15
    Last Modified: 10 Jul 2013 13:15
    URI: http://eprints.bbk.ac.uk/id/eprint/7613

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