The paper provides a measure of the euro-area output gap based on an off-the-shelf new-Keynesian macroeconomic model with nominal frictions (DSGE). In this class of model, the output gap is defined as the difference between the actual output level and the one that would arise in the presence of flexible wages and prices.
Unlike the measures of output gap obtained through statistical filtering techniques, the model-based estimates are remarkably stable over time and hence they are less prone to ex-post revisions. According to our results, the euro-area output gap in 2016 was more negative than assessed by most economic analysts and institutions, but was consistent with the weak dynamic observed for labour costs and core inflation.
