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Information rigidities and the news-adjusted output gap

Garratt, Anthony; Lee, Kevin; Shields, Kalvinder

Information rigidities and the news-adjusted output gap Thumbnail


Anthony Garratt

Professor of Economics

Kalvinder Shields


A vector-autoregressive model of actual output and expected output obtained from surveys is used to test for information rigidities and to provide a characterisation of output dynamics that accommodates these information structures. News on actual and expected outputs is decomposed to identify innovations understood to have short-lived effects and these are used with the model to derive a ‘news-adjusted output gap׳ measure. The approach is applied to US data over 1970q1–2014q2 and the new gap measure is shown to provide a good leading indicator of inflation.

Journal Article Type Article
Acceptance Date Jun 15, 2016
Online Publication Date Jun 23, 2016
Publication Date Sep 1, 2016
Deposit Date Jul 11, 2016
Publicly Available Date Jul 11, 2016
Journal Journal of Economic Dynamics and Control
Print ISSN 0165-1889
Electronic ISSN 1651889
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 70
Keywords Information rigidities; Survey-based expectations; Output gap
Public URL
Publisher URL


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