Economics, Econometrics and Finance
3 years ago

New method improves accuracy of output gap estimates for policy decisions.

Improved Output Gap Estimates and Forecasts Using a Local Linear Regression
Marlon Fritz

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The researchers developed a new method to estimate and forecast the output gap, which is the difference between potential and actual output. By using a local polynomial regression combined with a SETAR model, they were able to improve the accuracy of their estimates. Their approach showed a higher correlation with output gap estimates from economic institutions like the FED and OECD. This new method can help policymakers make better decisions by providing more reliable output gap estimates.