IIF Authors

Status: Will be live at 02/04/2021 07:20

Global Macro Views: Output Gaps for Italy and Spain

  • The COVID-19 shock means that GDP is below potential almost everywhere.
  • But there is big uncertainty how to estimate the output gap, especially in real time.
  • We last week updated our inflation-consistent output gaps for the US and Euro zone, …
  • using the Phillips curve to compare IMF output gap estimates to the level of core inflation.
  • The robust level of core PCE inflation validated the IMF’s relatively modest gap for the US, …
  • while low Q4 core HICP inflation points to more Euro zone slack than IMF estimates suggest.
  • This Global Macro Views extends our inflation-consistent gap estimates to Italy and Spain.
  • We find evidence of substantial slack in Italy, while Spain is in line with IMF gap estimates.
  • There is a large degree of uncertainty around our numbers, as with any gap estimate.