Nowcasting the output gap

Crawford School of Public Policy | Centre for Applied Macroeconomic Analysis

Event details

Seminar

Date & time

Thursday 11 June 2020
5.00pm–6.00pm

Venue

Online via Zoom

Speaker

Benjamin Wong, Monash University

Contacts

Rossana Bastos Pinto

In this seminar Benjamin Wong will propose a way to directly nowcast the output gap using the Beveridge-Nelson decomposition based on a mixed-frequency Bayesian VAR. The mixed-frequency approach produces very similar estimates of the U.S. output gap to those based on a quarterly model, but it is able to provide timely updates to estimates within a quarter as higher-frequency data become available. The author finds that the output gap nowcasts are much more reliable than those for output growth, with monthly indicators for a credit risk spread, consumer sentiment, and initial claims containing particularly useful information about the output gap. An out-of-sample analysis of the COVID-19 crisis anticipates huge declines in the U.S. output gap in the first half of 2020 before quarterly real GDP is observed, with a scenario nowcast given data up to April 2020 implying an output gap of -28.8% in 2020Q2.

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