Potential output—in the sense of the GDP level or path an economy can sustain over the medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate when financial “booms and busts” are driving the real economy. This paper uses a simple multivariate filtering...

We suggest a new approach for analyzing the role of financial variables and shocks in computing the output gap. We estimate a two-region DSGE model for the euro area, with financial frictions at the household level, between 2000-2013. After joining the monetary union, a decline in some...

Potential output-in the sense of the GDP level or path an economy can sustain over the medium term-is a crucial benchmark for policymakers. However, it is difficult to estimate when financial 'booms and busts' are driving the real economy. This paper uses a simple multivariate filtering approach...

This paper estimates a New Keynesian DSGE model with an explicit financial intermediary sector. Having measures of financial stress, such as the spread between lending and borrowing, enables the model to capture the impact of the financial crisis in a more direct and efficient way. The model...

This paper investigates financial frictions in US postwar data to understand the interaction between the real business cycle and the credit market. A Bayesian estimation technique is used to estimate a large Vector Autoregression and New Keynesian models demonstrating how financial shocks can...

External headwinds, together with domestic vulnerabilities, have loomed over the prospects of emerging markets in recent years. We propose an empirical toolbox to quantify the impact of external macro-financial shocks on domestic economies in parsimonious way. Our model is a Bayesian VAR...

This paper describes recent work to strengthen nowcasting capacity at the IMF's European department. It motivates and compiles datasets of standard and nontraditional variables, such as Google search and air quality. It applies standard dynamic factor models (DFMs) and several machine learning...