The School of Economics invites you to a Macro/Trade seminar presented by Matteo Luciani (Federal Reserve Board).

Measuring the output gap using large datasets

Abstract

We decompose US aggregate output into potential output and the output gap by means of a non-stationary dynamic factor model estimated on a large dataset of macroeconomic indicators, combined with a non-parametric trend-cycle decomposition of the factors. We find that: (1) from the mid-90s to 2008 the US economy operated above its potential; (2) as of 2018:Q4 the labor market was tighter than the goods and services market; and (3) our output gap measure revises modestly in real time. Due to its purely data driven nature, our measure is a natural complementary tool to the theoretical models used in policy institutions.