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The Reserve Bank of New Zealand’s output gap indicator suite and its real-time properties

Jed Armstrong

The output gap is a key concept in monetary policy, reflecting pressures on resources in the economy. However, it is unobservable, and so must be estimated. This paper outlines a suite of indicators used by the Reserve Bank of New Zealand to inform estimates of the output gap. The paper discusses the real-time properties of the suite of indicators, and uses two metrics to evaluate the performance of each indicator. The best-performing indicators of the output gap are those based on labour market variables, but the difference in performance between the indicators is small enough that the entire suite should be considered.