Event Details

The Seminar will be hosted by the Economics Department

Matteo Barigozzi will present "“Measuring aggregate output and the output gap using large datasets”

Abstract:There are two fundamental issues inmonetary policy, and macroeconomics in general: measuring appropriatelyaggregate output; and, decomposing it into potential output and output gap. Inthis paper we tackle both issues by using a Non-Stationary Dynamic Factor modelestimated on a large dataset of US macroeconomic indicators. Two main resultsemerge from our analysis: first, since 2010, output growth was on average 0.5percentage point higher than Bureau of Economic Analysis (BEA) estimates. Ourmeasure’s higher growth has been concentrated in the first quarter of the year,suggesting that weakness in the BEA’s first-quarter growth over the pastseveral years may be due to mismeasurement rather than problems with seasonal adjustment.Second, our estimates of the output gap is remarkably similar to that of theCongressional Budget Office (CBO), but from the late nineties to the financialcrisis. In particular, while according to the CBO the level of the output gapwas negative between 2001:Q1 and 2005:Q4, according to our estimate in thatsame period the output gap was positive, thus pointing out that growth in theyear before the Great Recession was heavily boosted by temporary factors, hencenot sustainable.

Disclaimer: the views expressed in this paper are those of theauthors and do not necessarily reflect those of the Board of Governors or theFederal Reserve System.