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Information rigidities and the news-adjusted output gap

Garratt, Anthony; Lee, Kevin; Shields, Kalvinder

Authors

Anthony Garratt

KEVIN LEE kevin.lee@nottingham.ac.uk
Professor of Economics

Kalvinder Shields



Abstract

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
Publication Date Sep 1, 2016
Journal Journal of Economic Dynamics and Control
Print ISSN 0165-1889
Electronic ISSN 1651889
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 70
APA6 Citation Garratt, A., Lee, K., & Shields, K. (2016). Information rigidities and the news-adjusted output gap. Journal of Economic Dynamics and Control, 70, https://doi.org/10.1016/j.jedc.2016.06.004
DOI https://doi.org/10.1016/j.jedc.2016.06.004
Keywords Information rigidities; Survey-based expectations; Output gap
Publisher URL http://www.sciencedirect.com/science/article/pii/S0165188916301038
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





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