Entries for 'Output Gaps'
August 18, 2022
The Euro zone is debating reform of the Stability and Growth Pact (SGP).
Our CANOO campaign has flagged underestimation of periphery output gaps, …
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July 8, 2021
Ten years ago, the Euro zone crisis exploded onto the global stage, …
with the spread on Italian sovereign bonds over Bunds rising substantially.
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February 11, 2021
The US is debating whether a $1.9 tn fiscal stimulus will lead to overheating, …
a discussion that hinges critically on just how much slack there is...
February 4, 2021
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 r...
January 28, 2021
There’s plenty of evidence that output gaps are difficult to estimate, …
especially in real time when they matter most for fiscal and monetary polic...
August 20, 2020
The Euro zone was marked by economic divergence before COVID-19, …
with GDP in Spain and Italy slow to rebound after the 2011/2 debt crisis.
Econo...
February 6, 2020
Core PCE inflation fell back to 1.3 percent quarter-on-quarter in Q4 2019, ...
reigniting the debate around “missing inflation” and what that means ...
November 15, 2019
Consensus NAIRU estimates put the Euro periphery near full employment, ...
even though the pace of underlying inflation has been subdued for many ye...
November 8, 2019
Consensus NAIRU estimates put Italy and Spain close to full employment, ...
even though the pace of underlying inflation has been subdued for many y...
October 31, 2019
In last week’s Global Macro Views we flagged rising Euro zone deflation risk, ...
because the weaker German outlook risks upsetting a delicate Euro ...
October 24, 2019
The annual meetings were full of anecdotes on the severity of the German downturn.
The diesel shock and new environmental standards weigh heavily on...
October 3, 2019
We started the Campaign against Nonsense Output Gaps (CANOO) earlier this year, ...
arguing that consensus estimates for Euro periphery output gaps ...
July 3, 2019
A common opposing view to our nonsense output gap series is that employment has almost fully recovered, so how can a substantial amount of labor market slack remain? Rising labor participation among women flatters the picture, which we filter out by looking at prime-age male employment. Our work points to still significant slack in Spain, Italy and Greece.
June 13, 2019
Euro periphery current account balances have almost all swung into surplus, which is often cited as positive evidence that competitiveness has been restored. But the swing to current account surplus has a big cyclical component due to still large output gaps in some cases. Adjusted for slack, Euro periphery current accounts are mostly still in deficit.
June 6, 2019
Phillips curves provide a useful lens through which to look at output gaps, since they link the degree of economic slack to the pace of underlying inflation. Estimates for structural unemployment in the Euro periphery look too high given how low inflation historically, which supports our earlier analysis that Euro periphery output gaps remain large.
May 30, 2019
We test whether Euro periphery output gaps are too narrow given weak or negative growth. If we allow for sizable 2008 GDP drops and slower trend growth since, we estimate periphery output gaps that are often twice as large as consensus numbers.
May 23, 2019
Small output gap estimates for the Euro periphery make little sense, because they embed an assumption of negative trend growth post-2008. We derive Euro periphery output gaps which are consistent with Phillips curve evidence and help explain why core inflation has remained so low on the periphery.
November 27, 2018
Euro periphery current account balances have almost all swung into surplus, which is often cited as positive evidence that competitiveness has been restored. But the swing from current account deficit to surplus has a cyclical component, reflecting depressed import volumes due to still large output gaps in some cases. We estimate cyclically-adjusted balances for a range of output gap estimates. Adjusting for slack, Euro periphery current accounts are likely still in deficit.
November 21, 2018
The Euro zone current account balance is in sizeable surplus, which some see as a sign the Euro is undervalued and needs to rise. But the headline surplus in part reflects persistently large output gaps, which may be inflating the external balance by depressing import volumes. We derive a cyclically-adjusted current account balance for the Euro zone, which turns out to be negative, potentially signaling Euro overvaluation.
November 19, 2018
Estimates for Euro periphery output gaps are oddly small, even where real GDP has fallen substantially in the last 10 years. These estimates implicitly assume lots of activity is permanently lost, with potential “bending” down, almost as if to validate low actual GDP. The reality is that economic slack on the periphery is likely still sizeable, and holding down underlying inflation despite unprecedented ECB easing.