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Anindya Biswas
''The output gap and inflation in U.S. data: an empirical note''
( 2015, Vol. 35 No.2 )
This paper analyzes the relationship between the output gap and inflation. This study uses a newly proposed flexible data-driven measure of the output gap and finds that such a distance weight-based measure of the ex-ante output gap (WAgap), has a significant and better in-sample relation with inflation in U.S from January, 1948 to August, 2013 compared to a prevalent ex-ante trend-based measure of the output gap. However, this study confirms the literature's conclusion that finding the out-of-sample/real-time predictability for inflation is most challenging, and the WAgap model provides only modest improvement over the benchmark historical mean model.
Keywords: Inflation predictability, Output gap, Real-time data, Beta-weighting scheme
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : May 17 2014 Manuscript Accepted : Apr 02 2015

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