Abstract
This study introduces a novel and simple method for estimating the real-time output gap using data from Israel’s Business Tendency Survey. We develop an index of excess demand or supply, defined as the difference between reported sup ply and demand constraints. This index is incorporated into a state-space model alongside actual output to estimate the output gap. Our findings demonstrate that the derived out put gap measure has a positive and statistically significant impact on both consumer price index and producer price inflation in Israel. This measure yields promising results, exhibiting explanatory power that compares favorably to several widely used alternative output gap estimation methods. Furthermore, our output gap measure demonstrates higher real-time reliability than the standard univariate method. The proposed approach complements existing methods, providing valuable insights for economic analysis and policymaking by leveraging real-time survey data and capturing businesses’ perceptions of economic constraints.
Authors
- Alex Ilek
- Yuval Mazar
JEL codes
- E31
- E32
- E37