Information rigidities and the news-adjusted output gap

Garratt, Anthony; Lee, Kevin; Shields, Kalvinder

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.

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

• 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
• DOI: https://doi.org/10.1016/j.jedc.2016.06.004
• Keywords: Information rigidities; Survey-based expectations; Output gap
• Public URL: https://nottingham-repository.worktribe.com/output/975021
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0165188916301038