Download or read book Output Gap Uncertainty and Real Time Monetary Policy written by Francesco Grigoli and published by International Monetary Fund. This book was released on 2015-01-23 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Output gap estimates are subject to a wide range of uncertainty owing to data revisions and the difficulty in distinguishing between cycle and trend in real time. This is important given the central role in monetary policy of assessments of economic activity relative to capacity. We show that country desks tend to overestimate economic slack, especially during recessions, and that uncertainty in initial output gap estimates persists several years. Only a small share of output gap revisions is predictable ex ante based on characteristics like output dynamics, data quality, and policy frameworks. We also show that for a group of Latin American inflation targeters the prescriptions from typical monetary policy rules are subject to large changes due to output gap revisions. These revisions explain a sizable proportion of the deviation of inflation from target, suggesting this information is not accounted for in real-time policy decisions.

Download or read book How Informative Are Real Time Output Gap Estimates in Europe written by Mr.Alvar Kangur and published by International Monetary Fund. This book was released on 2019-09-20 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the properties of the IMF-WEO estimates of real-time output gaps for countries in the euro area as well as the determinants of their revisions over 1994-2017. The analysis shows that staff typically saw economies as operating below their potential. In real time, output gaps tend to have large and negative averages that are largely revised away in later vintages. Most of the mis-measurement in real time can be explained by the difficulty in predicting recessions and by overestimation of the economy’s potential capacity. We also find, in line with earlier literature, that real-time output gaps are not useful for predicting inflation. In addition, countries where slack (and potential growth) is overestimated to a larger extent primary fiscal balances tend to be lower and public debt ratios are higher and increase faster than projected. Previous research suggests that national authorities’ real-time output gaps suffer from a similar bias. To the extent these estimates play a role in calibrating fiscal policy, over-optimism about long-term growth could contribute to excessive deficits and debt buildup.

Download or read book Structural Balance Targeting and Output Gap Uncertainty written by Eugen Tereanu and published by International Monetary Fund. This book was released on 2014-06-13 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Potential output estimation plays a crucial role in conducting fiscal policy based on structural balances. Difficulties in estimating potential output could lead to an erroneous policy stance with a consequent impact on growth. This paper analyzes historical data on revisions of actual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically-adjusted primary balance (CAPB). It finds that revisions in output gap estimates were large, at almost 11⁄2 percent of potential GDP on average. Revisions in potential GDP also contributed significantly to revisions in the estimated CAPB, especially during the crisis years. Given these findings and historical correlations, it proposes an indicative rule of thumb for reducing errors in the measurement of fiscal effort by factoring in that about 30 percent of revisions in actual growth capture changes in potential growth. In other words, the standard advice of “letting automatic stabilizers operate fully” in response to a positive/negative growth shocks likely implies a strengthening/weakening of the structural position.

Download or read book Inflation Targeting Under Potential Output Uncertainty written by Victor Gaiduch and published by International Monetary Fund. This book was released on 2000-10 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The concept of sustainable productive capacity is playing an increasingly important role in monetary policy formulation throughout the world. Specifying price stability as a central objective of monetary policy has contributed to this increased importance. The long lags between policy actions and inflation outcomes mean that indicators of future inflation pressures must be relied on to guide current policy actions that are aimed at achieving price stability. The extent to which an economy's productive resources are being utilized is considered to be a useful indicator of future price pressures. Whether productive resources are defined in terms of the goods market (potential output) or the labor market (trend unemployment), policymakers rely on estimates of these concepts to determine whether current levels of activity can be sustained without generating price pressures. If activity is deemed to be above a sustainable level, policymakers may suspect that upward pressure on inflation will emerge if they do not take actions to moderate activity. Conversely, if current activity is below the sustainable level this may lead policymakers to stimulate activity to avoid future downward pressure on inflation.

Download or read book Measuring Output Gap Is It Worth Your Time written by Mr.Jiaqian Chen and published by International Monetary Fund. This book was released on 2020-02-07 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We apply a range of models to the U.K. data to obtain estimates of the output gap. A structural VAR with an appropriate identification strategy provides improved estimates of output gap with better real time properties and lower sensitivity to temporary shocks than the usual filtering techniques. It also produces smaller out-of-sample forecast errors for inflation. At the same time, however, our results suggest caution in basing policy decisions on output gap estimates.

Download or read book Monetary Policy in Real Time written by Jan F. Qvigstad and published by . This book was released on 2019 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Setting the interest rate in an inflation targeting regime requires a total assessment, often translated into forecasts, of the outlook for inflation and real activity. In the assessment process, it is useful to have some references or cross-checks, in terms of simple rules. Although simple rules should not be followed mechanically, they provide a device for structuring and disciplining assessments. In addition, simple rules can also be useful as a checkpoint on whether or not monetary policy is “on track”. The Taylor rule is one such, but is in practice difficult to calculate in real time. Data on output are often revised substantially, making real-time estimates of the output gap highly uncertain. We therefore consider alternative Taylor-type rules that do not require information about current gross domestic product (GDP). The rules are assessed by their ability to mimic the ex post Taylor rule. Despite uncertainty about the natural rate of unemployment, we find that the unemployment gap is a good indicator of the “true” output gap, i.e. the output gap that can be calculated ex post with the benefit of hindsight. An alternative that combines information on wage and credit growth is also able to mimic the behaviour of the ex post Taylor rule quite closely. The role of simple rules as a tool for detecting monetary policy misalignments is discussed with reference to monetary policy in Norway after 1995.

Download or read book Optimal Monetary Policy Under Uncertainty written by Richard T. Froyen and published by Edward Elgar Publishing. This book was released on 2008-01-01 with total page 341 pages. Available in PDF, EPUB and Kindle. Book excerpt: Froyen and Guender have provided a thorough and careful analysis of optimal monetary policy over most of the range of theoretical models that have been used in modern macroeconomics. By providing a comprehensive and clear comparative framework they will help the student of monetary policy understand why there have been conflicting views of what policy makers should do. Central Banking In Optimal Monetary Policy Under Uncertainty, academicians and economists Richard T. Froyen and Alfred V. Guender have collaborated on presenting an informed and informative survey of optimal monetary policy literature arising during the 1970s and 1980s as a ground work for understanding current market and other economic influences on such germane issues as discretion versus commitment, target versus instrument rules, and the delegation of policy making authority within the private and public sectors. With meticulous attention to scholarship and objectivity. . . Optimal Monetary Policy Under Uncertainty is a thoughtful and thought-provoking body of work that is very strongly recommended for professional, academic, corporate and governmental economic reference collections and supplemental reading lists. Midwest Book Review Recently there has been a resurgence of interest in the study of optimal monetary policy under uncertainty. This book provides a thorough survey of the literature that has resulted from this renewed interest. The authors ground recent contributions on the science of monetary policy in the literature of the 1970s, which viewed optimal monetary policy as primarily a question of the best use of information, and studies in the 1980s that gave primacy to time inconsistency problems. This broad focus leads to a better understanding of current issues such as discretion versus commitment, target versus instrument rules, and the merits of delegation of policy authority. Casting a wide net, the authors survey the recent literature on the New Keynesian approach to optimal monetary policy in the context of the earlier literature. They emphasize the relationship between policy decisions and the information set available to the policymaker, a central focus of the earlier literature, obscured in much recent work. Optimal policy questions are considered in open as well as closed economy models and the often confusing terminology in the literature is sorted and clarified. Questions are considered within easily analysed models and the authors clearly show why these models lead to different (or equivalent) policy conclusions. Recent policy issues such as desirability of inflation targeting and the relative merits of target versus instrument rules are covered in detail. Economists in academia and in policymaking organizations who want to learn about recent developments in the area of optimal monetary policy, as well as graduate and advanced undergraduate students in macroeconomic and monetary economics, will find this volume a clear and thorough examination of the topic.

Download or read book Estimates of Potential Output and the Neutral Rate for the U S Economy written by Ali Alichi and published by International Monetary Fund. This book was released on 2018-07-06 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimates of potential output and the neutral short-term interest rate play important roles in policy making. However, such estimates are associated with significant uncertainty and subject to significant revisions. This paper extends the structural multivariate filter methodology by adding a monetary policy block, which allows estimating the neutral rate of interest for the U.S. economy. The addition of the monetary policy block further improves the reliability of the structural multivariate filter.

Download or read book Lower for Longer written by Mr.Andrea Pescatori and published by International Monetary Fund. This book was released on 2015-06-24 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a semi structural model to estimate neutral rates in the United States. Our Bayesian estimation incorporates prior information on the output gap and potential output (based on a production function approach) and accounts for unconventional monetary policies at the ZLB by using estimates of “shadow” policy rates. We find that our approach provides more plausible results than standard maximum likelihood estimates for the unobserved variables in the model. Results show a significant trend decline in the neutral real rate over time, driven only in part by a decline in potential growth whereas other factors (including excess global savings) matter. Neutral rates likely turned negative during the Global Financial Crisis and are expected to increase only gradually looking forward.

Download or read book Output Gaps in Real Time written by David W. R. Gruen and published by . This book was released on 2002 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The output gap - the difference between actual and potential output - is widely regarded as a useful guide to future inflationary pressures, as well as an important indicator of the state of the economy in its own right. Since the output gap is unobservable, however, its estimation is prone to error, particularly in real time. Errors result both from revisions to the underlying data, as well as from end-point problems that are endemic to econometric procedures used to estimate output gaps. These problems reduce the reliability of output gaps estimated in real time, and lead to questions about their usefulness. We examine 121 vintages of Australian GDP data to assess the seriousness of these problems. Our study, which is the first to address these issues using Australian data, is of interest for the method we use to obtain real-time output-gap estimates. Over the past 28 years, our real-time output-gap estimates show no apparent bias, when compared with final output-gap estimates derived with the benefit of hindsight using the latest available data. Furthermore, the root-mean-square difference between the real-time and final output-gap series is less than 2 percentage points, and the correlation between them is over 0.8. Our general conclusion is that quite good estimates of the output gap can be generated in real time, provided a sufficiently flexible and robust approach is used to obtain them.0D0A.

Download or read book Real time Model Uncertainty in the United States written by Robert J. Tetlow and published by . This book was released on 2010 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Output Gap Uncertainty and Real Time Monetary Policy written by Francesco Grigoli and published by International Monetary Fund. This book was released on 2015-01-23 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Output gap estimates are subject to a wide range of uncertainty owing to data revisions and the difficulty in distinguishing between cycle and trend in real time. This is important given the central role in monetary policy of assessments of economic activity relative to capacity. We show that country desks tend to overestimate economic slack, especially during recessions, and that uncertainty in initial output gap estimates persists several years. Only a small share of output gap revisions is predictable ex ante based on characteristics like output dynamics, data quality, and policy frameworks. We also show that for a group of Latin American inflation targeters the prescriptions from typical monetary policy rules are subject to large changes due to output gap revisions. These revisions explain a sizable proportion of the deviation of inflation from target, suggesting this information is not accounted for in real-time policy decisions.

Download or read book The Reliability of Output Gap Estimates in Real Time written by Athanasios Orphanides and published by . This book was released on 1999 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Usefulness of Output Gaps for Policy Analysis written by Isabelle Koske and published by . This book was released on 2008 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Simple Monetary Policy Rules Under Model Uncertainty written by Ann-Charlotte Eliasson and published by International Monetary Fund. This book was released on 1999-05-01 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using stochastic simulations and stability analysis, the paper compares how different monetary rules perform in a moderately nonlinear model with a time-varying nonaccelerating-inflation-rate-of-unemployment (NAIRU). Rules that perform well in linear models but implicitly embody backward-looking measures of real interest rates (such as conventional Taylor rules) or substantial interest rate smoothing perform very poorly in models with moderate nonlinearities, particularly when policymakers tend to make serially correlated errors in estimating the NAIRU. This challenges the practice of evaluating rules within linear models, in which the consequences of responding myopically to significant overheating are extremely unrealistic.

Download or read book Designing a Simple Loss Function for Central Banks written by Davide Debortoli and published by International Monetary Fund. This book was released on 2017-07-21 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.

Download or read book Errors in the Measurement of the Output Gap and the Design of Monetary Policy written by Athanasios Orphanides and published by . This book was released on 1999 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: