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TREND-CYCLE DECOMPOSITION OF OUTPUT AND EURO AREA INFLATION FORECASTS: A REAL-TIME APPROACH BASED ON MODEL COMBINATION

Published online by Cambridge University Press:  09 October 2013

Pierre Guérin ,
Laurent Maurin  and
Matthias Mohr
Pierre Guérin*
Affiliation:
Bank of Canada
Laurent Maurin
Affiliation:
European Central Bank
Matthias Mohr
Affiliation:
European Central Bank
*
Address correspondence to: Pierre Guérin, Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada; e-mail: pguerin@bank-banque-canada.ca.
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Abstract

This paper estimates univariate and multivariate trend-cycle decomposition models of GDP and considers the novel possibility of regime switches in the growth of potential output. We compute both ex post and real-time estimates of the output gap to check the stability of our estimates to GDP data revisions. We find some evidence of regime changes in the growth of potential output during the recessions experienced by the euro area. We also run a forecasting experiment to evaluate the predictive power of the output gap for inflation. The benchmark autoregressive model tends to obtain the best forecasts for one-quarter-ahead forecasts, but the output gap measures help to forecast inflation for longer horizons.

Keywords

Unobserved Components ModelPhillips CurveMarkov SwitchingInflation Forecast
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 2 , March 2015 , pp. 363 - 393
Copyright
Copyright © Cambridge University Press 2013 

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