Real-time estimation of the output gap in Japan and its usefulness for inflation forecasting and policymaking

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Abstract

This paper examines the methods used by the Bank of Japan (BOJ) for estimation of the output gap. Great emphasis is put on the real-time estimation problems. After reviewing the evolution of output-gap estimation at the Bank, I discuss advantages and disadvantages of the various output-gap measures. First, I examine the usefulness of the output gap for inflation forecasting and show that the real-time output gap sometimes includes too much noise. Second, I investigate the implications of the real-time estimation problems for policy evaluation. Third, I exploit the TANKAN to enhance the usefulness of the real-time output gap.

Original languageEnglish
Pages (from-to)309-332
Number of pages24
JournalNorth American Journal of Economics and Finance
Volume16
Issue number3
DOIs
Publication statusPublished - 2005 Dec

Keywords

  • Inflation forecasting
  • Output gap
  • Real-time estimation
  • Taylor rule

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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