What question did this study set out to answer?

The research aims to evaluate how finance and asset prices impact the reliability of output gap estimates in real time.

April 29, 2026Empirica0 citationsOpen Access

Finance, asset prices, and the business cycle: evidence on the reliability of real-time output gap estimates

Key Points

The research aims to evaluate how finance and asset prices impact the reliability of output gap estimates in real time.
Utilized a structural unobserved components model
Integrated financial indicators with unemployment and inflation in the analysis
Focused on cyclical fluctuations in economic output
Incorporating finance and asset prices explained a significant portion of economic output fluctuations
Improved real-time output gap estimates were less affected by ex-post revisions
Findings suggest enhanced reliability in economic forecasting

Abstract

This paper examines the role of finance and asset prices in enhancing the real-time reliability of output gap estimates. In a structural unobserved components model, financial indicators are embedded in the cyclical component alongside unemployment and inflation. The results show that incorporating finance and asset prices not only explains a large share of cyclical fluctuations in economic output but also improves real-time reliability by producing estimates that are less prone to ex-post revisions.

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