Robust Real-Time Estimates of the German Output Gap based on a Multivariate Trend-Cycle Decomposition

21 Pages Posted: 18 Apr 2022 Last revised: 14 Jul 2022

See all articles by Tino Berger

Tino Berger

University of Goettingen (Göttingen) - Department of Economics

Christian Ochsner

German Council of Economic Experts

Date Written: April 5, 2022

Abstract

The German economy is an important economic driver in the Euro-area in terms of gross domestic product, labour force and international integration. We provide a state of the art estimate of the German output gap between 1995 and 2022 and present a nowcasting scheme that accurately predicts the German output gap up to three months prior to a gross domestic product data release. To this end, we elicit a mixed-frequency vector-autoregressive model in the spirit of Berger, Morley, and Wong (forthcoming) who propose to use monthly information to form an expectation about the current-quarter output gap. The mean absolute error of our nowcast compared to the final estimate is very small (0.28 percentage points) after only one month of observed data. Moreover, we show that business and consumer expectations, international trade and labour market aggregates consistently explain large shares of variation in the German output gap. Finally, our procedure is very reliable, as it implies an output gap that is hardly revised ex post.

Keywords: output gap, Germany, nowcast, mixed frequency, vector-autoregression

JEL Classification: E32,E37,C53

Suggested Citation

Berger, Tino and Ochsner, Christian, Robust Real-Time Estimates of the German Output Gap based on a Multivariate Trend-Cycle Decomposition (April 5, 2022). Available at SSRN: https://ssrn.com/abstract=4075961 or http://dx.doi.org/10.2139/ssrn.4075961

Tino Berger

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Christian Ochsner (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

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