New method reveals hidden economic trends, reshaping inflation forecasts.
Researchers developed a method to predict the output gap in the economy more accurately by combining different types of data. By using a mix of linear trends and flexible filters, they were able to create more reliable forecasts for inflation. This approach considers uncertainties in the data and provides a clearer picture of the economy's performance. The results show that this method improves the accuracy of predictions compared to simpler models that ignore the output gap.