New model shows eurozone output gap remains large, researchers argue
Other models fail to capture interplay of inflation and output, paper says
The eurozone has a large output gap, contrary to the proponents of the "secular stagnation" thesis, a working paper published by the European Central Bank argues.
In An inflation-predicting measure of the output gap in the euro area, Marek Jarociński and Michele Lenza present a Bayesian dynamic factor model of the eurozone as a means to estimate the eurozone's output gap. They define this as the "deviations of output from its trend that are consistent with the behaviour of inflation".
The
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