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Forecasting output gaps in the G-7 countries: the role of correlated innovations and structural breaks
journal contribution
posted on 2023-05-19, 02:16 authored by Dungey, M, Jacobs, JPAM, Jing TianJing TianTrend GDP and output gaps play an important role in fiscal and monetary policy formulation, often including the need for forecasts. In this article, we focus on forecasting trend GDP and output gaps with Beveridge-Nelson trend-cycle decompositions trend-cycle decompositions and investigate how these are affected by assumptions concerning correlated innovations and structural breaks. We evaluate expanding window, one-step-ahead forecasts indirectly for the G-7 countries on the basis of real GDP growth rate forecasts. We find that correlated innovations affect real GDP growth rate forecasts positively, while allowing for structural breaks works for some countries but not for all. In the face of uncertainty, the evidence supports that in making forecasts of trends and output gap policy-makers should focus on allowing for the correlation of shocks as an order of priority higher than unknown structural breaks.
History
Publication title
Applied EconomicsVolume
49Issue
45Pagination
4554-4566ISSN
0003-6846Department/School
TSBEPublisher
Routledge Taylor & Francis LtdPlace of publication
4 Park Square, Milton Park, Abingdon, England, Oxfordshire, Ox14 4RnRights statement
Copyright 2017 Informa UK Limited, trading as Taylor & Francis GroupRepository Status
- Restricted