A0528
Title: Measuring the Euro area output gap(s): A large-dimensional dynamic factor model approach
Authors: Claudio Lissona - University of Bologna (Italy) [presenting]
Matteo Barigozzi - University of Bologna (Italy)
Abstract: Exploiting the information from a large dataset of macroeconomic and financial variables, the Euro area output gap and potential output are estimated by means of a large-dimensional non-stationary dynamic factor model. The estimated output gap displays important medium-term variability and indicates a large slack in the aftermath of the Great Recession, consistent with a slowdown in potential output growth, which has not recovered to the pre-crisis level. Evidence is provided of the importance of credit aggregates to consistently disentangle the medium-term variability of the output gap, motivating the need to incorporate financial information in standard business cycles' models. Finally, by enlarging the information set to include GDP for the main Euro area countries, country-level output gaps are estimated. The results provide preliminary yet suggestive evidence of the heterogeneity between Euro area business cycles.
