Arbeitspapier
Improving output gap estimation: A bottom-up approach
We propose a multivariate Bayesian state space model to identify potential growth and the output gap consistent with the dynamics of the underlying production sectors of the economy and those of inflation and the labor market. Our approach allows us to decompose economic fluctuations and long-term trend growth of output and employment into its driving factors. Applying our model to the Swiss economy reveals substantial divergence among the considered production sectors- their contributions to gap and potential vary both in size and direction. Potential growth has been declining over the past two decades and the data points to labor market frictions and a well-identified Phillips curve. In a comprehensive real-time study, we review revision and forecasting properties of our estimate and compare it to established methods. Overall, we document several advantages of our sector gap model: a) It facilitates the interpretability of economic trends and cycles, allowing for more efficient policy actions, b) it has favorable revision properties compared to standard univariate filtering techniques and a baseline model without sectors, c) it is useful in forecasting output growth and inflation, and d) it produces economically meaningful potential growth rates.
- Language
-
Englisch
- Bibliographic citation
-
Series: KOF Working Papers ; No. 513
- Classification
-
Wirtschaft
Bayesian Analysis: General
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Construction and Estimation
Macroeconomics: Production
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- Subject
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Bayesian state space model
business cycle measurement
Gibbs sampling
output gap
potential output
production sectors
- Event
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Geistige Schöpfung
- (who)
-
Rathke, Alexander
Streicher, Sina
- Event
-
Veröffentlichung
- (who)
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ETH Zurich, KOF Swiss Economic Institute
- (where)
-
Zurich
- (when)
-
2023
- DOI
-
doi:10.3929/ethz-b-000642427
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Rathke, Alexander
- Streicher, Sina
- ETH Zurich, KOF Swiss Economic Institute
Time of origin
- 2023
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