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Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: Measuring the Euro area output gap using a multivariate unobserved components model containing phase shifts
Author(s): Chen, Xiaoshan
Mills, Terence C
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Keywords: Output gap
Higher-order cycle
State space
Kalman filter
Issue Date: Oct-2012
Date Deposited: 24-Apr-2013
Citation: Chen X & Mills TC (2012) Measuring the Euro area output gap using a multivariate unobserved components model containing phase shifts. Empirical Economics, 43 (2), p. 671–692.
Abstract: Several recent studies have used multivariate unobserved components models to identify the output gap and the non-accelerating inflation rate of unemployment. A key assumption of these models is that one common cycle component, such as the output gap, drives the cyclical fluctuations in all variables included in the model. This article also uses the multivariate approach to estimate the euro area output gap and the trends and cycles in other macroeconomic variables. However, it adopts a flexible way of linking the output gap to the cycle components in the other variables, in that we do not impose any leading or lagging restrictions between cycle components, as has been done in most previous studies. Our approach also allows us to assess the strength of cycle association and cross-correlation among cycle components using the model's parameter estimates. Finally, we demonstrate that our multivariate model can provide a satisfactory historical output gap estimate and also a 'real-time' estimate forthe aggregate euro area.
DOI Link: 10.1007/s00181-011-0495-7
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