Estimating the Output Gap in Real Time

I propose a novel method of estimating the potential level of U.S. GDP in real time. The proposed wage-based measure of economic potential remains virtually unchanged when new data are released. The distance between current and potential output--the output gap--satisfies Okun's law and outperfo...

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Bibliographic Details
Published in:Policy File 2013
Main Author: Cheremukhin, Anton
Format: Report
Language:English
Subjects:
Economic policy
Federal Reserve Bank of Dallas
Online Access:Request full text
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Summary:I propose a novel method of estimating the potential level of U.S. GDP in real time. The proposed wage-based measure of economic potential remains virtually unchanged when new data are released. The distance between current and potential output--the output gap--satisfies Okun's law and outperforms many other measures of slack in forecasting inflation. Thus, I provide a robust statistical tool useful for understanding current economic conditions and guiding policymaking.