Structural VAR-Based Estimates of the Euro Area Output Gap: Theoretical Considerations and Empirical Evidences

• Activity Number: 63
• Type: Topic Contributed
• Date/Time: Sunday, August 2, 2009 : 4:00 PM to 5:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Gian Luigi Mazzi*+ and James Mitchell and Filippo Moauro
• Companies: Eurostat and National Institute of Economic and Social Research and Eurostat
• Keywords: output gap estimates ; structural vars ; anticipating inflation

Abstract

Users look with particular attention to the output gap either because it gives relevant information on the cyclical behavior of the economy or for its capacity to anticipate features trends in inflation. Despite its relevance, the output gap is probably one of the unobserved economic variables for which the estimation is more controversial and uncertain. From one hand univariate methods are considered too mechanic and unable to incorporate economic constraints. On the other hand, structural multivariate methods based on production functions, require a big amount of information which is somewhat difficult to be gathered at high frequency.In this paper we consider several alternative specifications of economic constraints for both co-integrated and non co-integrated SVAR models. In the empirical part we analyze and compare alternative estimates of output gap for the euro area.