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