Search Results
Working Paper
Measuring the Euro Area Output Gap
We measure the Euro Area (EA) output gap and potential output using a non-stationary dynamic factor model estimated on a large dataset of macroeconomic and financial variables. From 2012 to 2023, we estimate that the EA economy was tighter than the European Commission and the International Monetary Fund estimate, suggesting that the slow EA growth is the result of a potential output issue, not a business cycle issue. Moreover, we find that credit indicators are crucial for pinning down the output gap, as excluding them leads to estimating a lower output gap in periods of debt build-up and a ...
Discussion Paper
The Euro Area has a growth problem
The decomposition of GDP into potential output—the level of output consistent with current technologies and "normal" use of capital and labor—and the output gap—the percentage deviation of GDP from its potential—is a fundamental task for policymakers. Potential output tells us how fast an economy can grow in the long run; the output gap helps assess the cyclical position of the economy and, thus, potential inflationary pressures (Jarociński and Lenza, 2018).