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- Title
A sectoral approach to measuring output gap: Evidence from 20 US Sectors over 1948−2020.
- Authors
Tercioglu, Remzi Baris
- Abstract
The existing output gap measures for the US economy rely on aggregate data and assume a constant output gap over sectors (see Coibion et al. [(2018) Brookings Papers on Economic Activity , 333–441] and Owyang et al. [(2018) Federal Reserve Bank of St. Louis Review , 297–316]); however, each sector has its cycle, which does not necessarily match the business cycle (Burns and Mitchell [(1946) National Bureau of Economic Research]). By modeling sectoral cycles based on their investment cycles with a nonparametric method, I estimate output gaps of 20 US sectors over 1948–2020. The weighted mean output gap indicates a persistent spare capacity in the last business cycle, pointing to insufficient stabilization policies behind secular stagnation. Phillips curve estimations with the weighted quartiles of sectoral output gaps show that the output gap of bottleneck sectors (weighted Q3) is correlated strongly with inflation over 1950–2020. Policymakers can track bottleneck sectors to mitigate inflationary pressures while supporting the sectors with negative output gaps to stabilize the output at its potential. My findings show that it is possible to produce more output by sector-level demand supporting policies without generating inflation.
- Subjects
NATIONAL Bureau of Economic Research; FEDERAL Reserve Bank of St. Louis; EVIDENCE gaps; BUSINESS cycles; PRICE inflation; FEDERAL Reserve banks; ECONOMIC activity; PHILLIPS curve; STAGNATION (Economics)
- Publication
Macroeconomic Dynamics, 2023, Vol 27, Issue 4, p1115
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100522000141