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Estimating Output Gap: a Beauty Contest Approach, Working paper WP/2018/2

Estimating Output Gap: a Beauty Contest Approach, Working paper WP/2018/2
Over the last decades, the estimation of the slack in the economy has become an essential piece of analysis for policymakers, both on the monetary policy and the fiscal policy front. Output gap estimation techniques have flourished accordingly, although there is no consensus on a best-performing methodology, as the selection criteria often imply important trade-offs. This paper presents a novel approach putting the focus on the specification of the model (“beauty contest” amongst candidate variables) rather than on a prior selection of the methodology itself (model “horse race”).

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