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Measuring output gap nowcast uncertainty
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Garratt, Anthony, Mitchell, James and Vahey, Shaun P. (2014) Measuring output gap nowcast uncertainty. International Journal of Forecasting, Volume 30 (Number 2). pp. 268-279. doi:10.1016/j.ijforecast.2013.07.012 ISSN 0169-2070.
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Official URL: http://dx.doi.org/10.1016/j.ijforecast.2013.07.012
Abstract
We propose a methodology for gauging the uncertainty in output gap nowcasts across a large number of commonly-deployed vector autoregressive (VAR) specifications for inflation and the output gap. Our approach utilises many output gap measures to construct ensemble nowcasts for inflation using a linear opinion pool. The predictive densities for the latent output gap utilise weights based on the ability of each specification to provide accurate probabilistic forecasts of inflation. In an application based on US real-time data, nowcasting over the out-of-sample evaluation period from 1991q2 to 2010q1, we demonstrate that a system of bivariate VARs produces well-calibrated ensemble densities for inflation, in contrast to univariate autoregressive benchmarks. The implied nowcast densities for the output gap are multimodal and indicate a considerable degree of uncertainty. For example, we assess the probability of a negative output gap at around 45% between 2004 and 2007. Despite the Greenspan policy regime, there still remained a substantial risk that the nowcast for output was below potential in real time. We extend our methodology to include distinct output gap measures, based on alternative filters, and show that, in our application, the nowcast density for the output gap is sensitive to the detrending method.
| Item Type: | Journal Article | ||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Global Energy Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | International Journal of Forecasting | ||||
| Publisher: | Elsevier | ||||
| ISSN: | 0169-2070 | ||||
| Official Date: | April 2014 | ||||
| Dates: |
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| Volume: | Volume 30 | ||||
| Number: | Number 2 | ||||
| Page Range: | pp. 268-279 | ||||
| DOI: | 10.1016/j.ijforecast.2013.07.012 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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