Tag Archives: financial conditions

How financial variables can help in identifying the output gap in the UK

Marko Melolinna.

Like in most advanced economies, output fell significantly in the UK in the aftermath of the financial crisis. There is an ongoing debate on to what extent this fall could be explained by output having grown above its sustainable level; in other words, was there a positive output gap before the crisis? I argue that using financial market indicators in addition to more traditional macroeconomic variables to explain output fluctuations helps in constructing a consistent real-time narrative of a positive pre-crisis output gap in the UK.

Continue reading

1 Comment

Filed under Financial Markets, Macroeconomics, Monetary Policy