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April 29, 2026Empirica0 citationsOpen Access

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

DSDominik Schmied

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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Cite This Study

Dominik Schmied (2026) studied this question.

synapsesocial.com/papers/69f1a033edf4b46824806e42https://doi.org/10.1007/s10663-026-09677-3
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