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Discussion Paper

Estimating the output gap in real time


Abstract: I propose a novel method of estimating the potential level of U.S. GDP in real time. The proposed wage-based measure of economic potential remains virtually unchanged when new data are released. The distance between current and potential output ? the output gap ? satisfies Okun?s law and outperforms many other measures of slack in forecasting inflation. Thus, I provide a robust statistical tool useful for understanding current economic conditions and guiding policymaking.

Keywords: economic potential; estimation; Output gap;

JEL Classification: C18; E01; C80;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Staff Papers

Publication Date: 2013

Issue: Dec

Order Number: 22