TY  - UNPD
A1  - Quast, Josefine
A1  - Wolters, Maik Hendrik
T1  - Reliable real-time output gap estimates based on a modified Hamilton filter
T2  - Working paper series / Institute for Monetary and Financial Stability ; 133
N2  - We propose a simple modification of the time series filter by Hamilton (2018) that yields reliable and economically meaningful real-time output gap estimates. The original filter relies on 8-quarter-ahead forecast errors of a simple autoregression of log real GDP. While this approach yields a cyclical component of GDP that is hardly revised with new incoming data due to the one-sided filtering approach, it does not cover typical business cycle frequencies evenly, but short business cycles are muted and medium length business cycles are amplified. Further, the estimated trend is as volatile as GDP itself and can thus hardly be interpreted as potential GDP. A simple modification that is based on the mean of 4- to 12-quarter-ahead forecast errors shares the favorable real-time properties of the Hamilton filter, but leads to a much better coverage of typical business cycle frequencies and a smooth estimated trend. Based on output growth and inflation forecasts and a comparison to revised output gap estimates from policy institutions, we find that real-time output gaps based on the modified Hamilton filter are economically much more meaningful measures of the business cycle than those based on other simple statistical trend-cycle decomposition techniques such as the HP or the Bandpass filter.
T3  - Working paper series / Institute for Monetary and Financial Stability - 133 
KW  - output gap
KW  - potential output
KW  - trend-cycle decomposition
KW  - Hamilton filter
KW  - real-time data
KW  - inflation forecasting
Y1  - 2019
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/50057
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-500573
UR  - https://www.imfs-frankfurt.de/fileadmin/user_upload/IMFS_WP/IMFS_WP_133.pdf
IS  - March 26, 2019
PB  - Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability
CY  - Frankfurt am Main
ER  -