What Is the Output Gap and when Do We know It? Time-varying Unce rtainty of the Federal Reserve's Output Gap Estimates
Abstract:
A factor s tochastic volatility model estimates the common component to forecasts of t he output gap produced by the staff of the Federal Reserve Board, its time- varying volatility, and time-varying, horizon-specific forecast uncertainty . The common component to the output gap forecasts identifies a persistent and highly procyclical business cycle. Unexpected increases to the output g ap produce strong, persistent responses in other macroeconomic variables, i ndicating that the output gap is a valuable proxy of aggregate demand. Howe ver, forecasts of the output gap are very uncertain, even well after the fa ct: the standard deviation an estimate of the output gap eight quarters ago has a 70 percent credible region of about +/-.5 percentage points, the unc ertainty surrounding output gap forecasts is much larger. Finally, increase d macroeconomic uncertainty, as measured by the output gap's time-varying v olatility, produces pronounced negative responses to other macroeconomic va riables.
DTSTAMP:20260404T124445Z DTSTART:20191016T130000Z DTEND:20191016T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR