Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Output Gap Measurement Through the Lens of Macroeconomic Theory
Why do different filters for output gap measurement disagree? We show, analytically and empirically, that it is because they measure different things. Standard macroeconomic theory implies two output gaps that can diverge, and it is unclear whether existing filters implicitly track one of them, none of them or a mix. We propose a new two-gap filter that estimates both gaps, makes clear what is being measured and when policy faces stabilization trade-offs.
The Working Papers of Danmarks Nationalbank describe research and development, often still ongoing, as a contribution to the professional debate. The viewpoints and conclusions stated are the responsibility of the individual contributors, and do not necessarily reflect the views of Danmarks Nationalbank.