Tracking the German Business Cycle

The German economy is an important economic driver in the Euro-area in terms of gross domestic product, labour force and international integration. We provide a state of the art estimate of the German output gap between 1995 and 2021 and present a nowcasting scheme that accurately predicts the Germany output gap up to three months prior to a gross domestic product data release. To this end, we elicit a mixed-frequency vector-autoregressive model in the spirit of Berger, Morley and Wong (forthcoming) who propose to use monthly information to form an expectation about the current-quarter output gap. The mean absolute error of our nowcast is very small (0.25 percentage points) after only one month of observed data. Moreover, we show that international trade and labour market aggregates consistently explain large shares of variation in the German output gap